Although Armstrong World has dropped 7.6% to $123.12 per share over the past six months, it has beaten the S&P 500 by 6.7 percentage points.

Is now the time to buy Armstrong World, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Despite the more favorable entry price, we don't have much confidence in Armstrong World. Here are three reasons why we avoid AWI and a stock we'd rather own.

Why Is Armstrong World Not Exciting?

Started as a two-man shop dating back to the 1860s, Armstrong (NYSE:AWI) provides ceiling and wall products to commercial and residential spaces.

1. Slow Organic Growth Suggests Waning Demand In Core Business

Investors interested in Building Materials companies should track organic revenue in addition to reported revenue. This metric gives visibility into Armstrong World’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Armstrong World’s organic revenue averaged 4.5% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

2. EPS Barely Growing

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.

Armstrong World’s unimpressive 5.9% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

3. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Armstrong World’s margin dropped by 4 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Armstrong World’s free cash flow margin for the trailing 12 months was 19.8%.

Final Judgment

Armstrong World isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 19.1× forward price-to-earnings (or $123.12 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.

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