Fortune Brands’s 18.7% return over the past six months has outpaced the S&P 500 by 6.3%, and its stock price has climbed to $78.20 per share. This run-up might have investors contemplating their next move.
Is there a buying opportunity in Fortune Brands, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.We’re happy investors have made money, but we don't have much confidence in Fortune Brands. Here are three reasons why FBIN doesn't excite us and a stock we'd rather own.
Why Do We Think Fortune Brands Will Underperform?
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE:FBIN) makes plumbing, security, and outdoor living products.
1. Core Business Falling Behind as Demand Declines
In addition to reported revenue, organic revenue is a useful data point for analyzing Home Construction Materials companies. This metric gives visibility into Fortune Brands’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, Fortune Brands’s organic revenue averaged 4.8% 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 Fortune Brands 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 Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Fortune Brands’s unimpressive 4% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Fortune Brands’s margin dropped by 10.7 percentage points over the last five years. If its declines continue, it could signal higher capital intensity. Fortune Brands’s free cash flow margin for the trailing 12 months was 8.6%.
Final Judgment
Fortune Brands doesn’t pass our quality test. With its shares topping the market in recent months, the stock trades at 16.6× forward price-to-earnings (or $78.20 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere. Let us point you toward Cloudflare, one of our top software picks that could be a home run with edge computing.
Stocks We Would Buy Instead of Fortune Brands
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