Sherwin-Williams has been treading water for the past six months, recording a small loss of 2.2% while holding steady at $316.98. The stock also fell short of the S&P 500’s 8.5% gain during that period.
Is there a buying opportunity in Sherwin-Williams, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Sherwin-Williams Not Exciting?
We don’t have much confidence in Sherwin-Williams. Here are three reasons we avoid SHW, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Sherwin-Williams’s sales grew at a tepid 4.9% compounded annual growth rate over the last five years. This was below our standard for the industrials sector.
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 Sherwin-Williams’s revenue to rise by 4.3%. While this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.
3. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sherwin-Williams’s unimpressive 5.4% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
Final Judgment
Sherwin-Williams isn’t a terrible business, but it doesn’t pass our quality test. With its shares trailing the market in recent months, the stock trades at 27× forward P/E (or $316.98 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We’re pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Would Buy Instead of Sherwin-Williams
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