Although the S&P 500 is down 1.4% over the past six months, Matthews’s stock price has fallen further to $21.21, losing shareholders 8.6% of their capital. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in Matthews, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Despite the more favorable entry price, we don't have much confidence in Matthews. Here are three reasons why there are better opportunities than MATW and a stock we'd rather own.

Why Do We Think Matthews Will Underperform?

Originally a death care company, Matthews International (NASDAQ:MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Matthews grew its sales at a weak 2.7% compounded annual growth rate. This was below our standards.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Matthews, its EPS declined by 10% annually over the last five years while its revenue grew by 2.7%. This tells us the company became less profitable on a per-share basis as it expanded.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Matthews historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

Final Judgment

Matthews doesn’t pass our quality test. Following the recent decline, the stock trades at 4.5× forward EV-to-EBITDA (or $21.21 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment. We’d recommend looking at one of our top digital advertising picks.

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