Over the past six months, Masco’s shares (currently trading at $70.99) have posted a disappointing 14.7% loss while the S&P 500 was down 1.7%. This might have investors contemplating their next move.

Is there a buying opportunity in Masco, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Even though the stock has become cheaper, we don't have much confidence in Masco. Here are three reasons why there are better opportunities than MAS and a stock we'd rather own.

Why Do We Think Masco Will Underperform?

Headquartered just outside of Detroit, MI, Masco (NYSE:MAS) designs and manufactures home-building products such as glass shower doors, decorative lighting, bathtubs, and faucets.

1. Core Business Falling Behind as Demand Declines

We can better understand Home Construction Materials companies by analyzing their organic revenue. This metric gives visibility into Masco’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, Masco’s organic revenue averaged 4.7% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Masco might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

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 Masco’s revenue to drop by 1.3%. Although this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Masco’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Masco, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 16× forward price-to-earnings (or $70.99 per share). This valuation tells us a lot of optimism is priced in - you can find better investment opportunities elsewhere. Let us point you toward the most entrenched endpoint security platform on the market.

Stocks We Would Buy Instead of Masco

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