Over the past six months, AGCO Corporation’s stock price fell to $97.65. Shareholders have lost 7.4% of their capital, which is disappointing considering the S&P 500 has climbed by 11.9%. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in AGCO Corporation, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why there are better opportunities than AGCO and a stock we'd rather own.
Why Do We Think AGCO Corporation Will Underperform?
With a history that features both organic growth and acquisitions, AGCO (NYSE:AGCO) designs, manufactures, and sells agricultural machinery and related technology.
1. Slow Organic Growth Suggests Waning Demand In Core Business
In addition to reported revenue, organic revenue is a useful data point for analyzing Agricultural Machinery companies. This metric gives visibility into AGCO Corporation’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, AGCO Corporation’s organic revenue averaged 5.5% 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 Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for AGCO Corporation, its EPS declined by 10.8% annually over the last five years while its revenue grew by 6.6%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Free Cash Flow Margin Dropping
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, AGCO Corporation’s margin dropped by 5.4 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business. AGCO Corporation’s free cash flow margin for the trailing 12 months was 2.8%.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of AGCO Corporation, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 19.3× forward EV-to-EBITDA (or $97.65 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better investment opportunities out there. We’d suggest looking at Meta, a top digital advertising platform riding the creator economy.
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