MGP Ingredients has gotten torched over the last six months - since October 2024, its stock price has dropped 63.7% to $28.87 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Is now the time to buy MGP Ingredients, or should you be careful about including it in 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 MGP Ingredients. Here are three reasons why there are better opportunities than MGPI and a stock we'd rather own.

Why Do We Think MGP Ingredients Will Underperform?

Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ:MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, MGP Ingredients’s sales grew at a sluggish 3.9% compounded annual growth rate over the last three years. This was below our standard for the consumer staples sector.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect MGP Ingredients’s revenue to drop by 24.3%, a decrease from its 3.9% annualized growth for the past three years. This projection is underwhelming and indicates its products will see some demand headwinds.

3. Shrinking Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Analyzing the trend in its profitability, MGP Ingredients’s operating margin decreased by 7.2 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 10.6%.

Final Judgment

We see the value of companies helping consumers, but in the case of MGP Ingredients, we’re out. After the recent drawdown, the stock trades at 8.2× forward price-to-earnings (or $28.87 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.

Stocks We Would Buy Instead of MGP Ingredients

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