Snap-on trades at $390.71 per share and has stayed right on track with the overall market, gaining 11% over the last six months. At the same time, the S&P 500 has returned 8.5%.
Is now the time to buy Snap-on, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Snap-on Not Exciting?
We’re sitting this one out for now. Here are three reasons we avoid SNA, plus one stock we’d rather own.
1. Core Business Falling Behind as Demand Declines
We can better understand Professional Tools and Equipment companies by analyzing their organic revenue. This metric gives visibility into Snap-on’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, Snap-on’s organic revenue averaged 1.5% 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 Snap-on 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. EPS Growth Has Stalled Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Snap-on’s flat EPS over the last two years was worse than its 1% 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
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).
Unfortunately, Snap-on’s ROIC has decreased 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
Snap-on isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at $390.71 per share (or a forward price-to-sales ratio of 3.8×). The market typically values companies like Snap-on based on their anticipated profits for the next 12 months, but there aren’t enough published estimates to arrive at a reliable number. You should avoid this stock for now - better opportunities lie elsewhere. Let us point you toward one of our top digital advertising picks.
Stocks We Would Buy Instead of Snap-on
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