Over the past six months, Macy’s stock price fell to $15.15. Shareholders have lost 5.8% of their capital, which is disappointing considering the S&P 500 has climbed by 12.2%. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Macy's, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Despite the more favorable entry price, we're cautious about Macy's. Here are three reasons why M doesn't excite us and a stock we'd rather own.

Why Do We Think Macy's Will Underperform?

With a storied history that began with its 1858 founding, Macy’s (NYSE:M) is a department store chain that sells clothing, cosmetics, accessories, and home goods.

1. Shrinking Same-Store Sales Indicate Waning Demand

Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.

Macy’s demand has been shrinking over the last two years as its same-store sales have averaged 4.9% annual declines.

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 Macy’s revenue to drop by 4%, a decrease from its 1.7% annualized declines for the past five years. This projection doesn't excite us and suggests its products will face some demand challenges.

3. Previous Growth Initiatives Haven’t Paid Off Yet

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).

Macy's historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.4%, lower than the typical cost of capital (how much it costs to raise money) for consumer retail companies.

Final Judgment

We see the value of companies helping consumers, but in the case of Macy's, we’re out. Following the recent decline, the stock trades at 5.9× forward price-to-earnings (or $15.15 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. Let us point you toward the Amazon and PayPal of Latin America.

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