Although Fortive (currently trading at $79.40 per share) has gained 8.7% over the last six months, it has trailed the S&P 500’s 14.2% return during that period. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Fortive, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.We're swiping left on Fortive for now. Here are three reasons why you should be careful with FTV and a stock we'd rather own.
Why Is Fortive Not Exciting?
Taking its name from the Latin root of "strong", Fortive (NYSE:FTV) manufactures products and develops industrial software for numerous industries.
1. Slow Organic Growth Suggests Waning Demand In Core Business
In addition to reported revenue, organic revenue is a useful data point for analyzing Professional Tools and Equipment companies. This metric gives visibility into Fortive’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, Fortive’s organic revenue averaged 4.6% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
2. 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.
Fortive’s EPS grew at a weak 1.5% compounded annual growth rate over the last five years, lower than its 4.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. Previous Growth Initiatives Haven’t Paid Off Yet
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Fortive’s five-year average ROIC was 6.5%, somewhat low compared to the best industrials companies that consistently pump out 20%+. Its returns suggest it historically did a mediocre job investing in profitable growth initiatives.
Final Judgment
Fortive’s business quality ultimately falls short of our standards. With its shares underperforming the market lately, the stock trades at 19.3x forward price-to-earnings (or $79.40 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 superior stocks to buy right now. We’d suggest looking at The Trade Desk, the nucleus of digital advertising.
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