Procter & Gamble has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 5.3% to $150.29 per share while the index has gained 9%.

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Why Is Procter & Gamble Not Exciting?

We’re cautious about Procter & Gamble. Here are three reasons why there are better opportunities than PG, plus one stock we’d rather own.

1. Slow Organic Growth Suggests Waning Demand In Core Business

When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.

The demand for Procter & Gamble’s products has been stable over the last eight quarters but fell behind the broader sector. On average, the company has posted feeble year-on-year organic revenue growth of 1.8%.

2. Projected Revenue Growth Is Slim

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 Procter & Gamble’s revenue to rise by 2.8%. This projection doesn’t excite us and suggests its newer products will not accelerate its top-line performance yet.

3. Free Cash Flow Margin Stuck in Neutral

Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Procter & Gamble’s margin was unchanged over the last year, showing it couldn’t improve. Its free cash flow margin for the trailing 12 months was 18.1%.

Final Judgment

Procter & Gamble isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 21.7× forward P/E (or $150.29 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We’re pretty confident there are superior stocks to buy right now. We’d recommend looking at one of our top digital advertising picks.

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