Over the last six months, Lockheed Martin shares have sunk to $467.55, producing a disappointing 17.3% loss - worse than the S&P 500’s 1.6% drop. 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 Lockheed Martin, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Even with the cheaper entry price, we're cautious about Lockheed Martin. Here are three reasons why LMT doesn't excite us and a stock we'd rather own.

Why Do We Think Lockheed Martin Will Underperform?

Headquartered in Maryland, Famous for the F-35 aircraft, Lockheed Martin (NYSE:LMT) specializes in defense, space, homeland security, and information technology products.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Lockheed Martin’s 3.5% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector.

2. EPS Growth Has Stalled

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Lockheed Martin’s flat EPS over the last five years was below its 3.5% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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, Lockheed Martin’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

Lockheed Martin falls short of our quality standards. After the recent drawdown, the stock trades at 16.7× forward price-to-earnings (or $467.55 per share). At this valuation, there’s a lot of good news priced in - you can find better investment opportunities elsewhere. We’d suggest looking at one of our all-time favorite software stocks.

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