Spectrum Brands has gotten torched over the last six months - since October 2024, its stock price has dropped 24.2% to a new 52-week low of $69.23 per share. This might have investors contemplating their next move.

Is there a buying opportunity in Spectrum Brands, 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.

Even with the cheaper entry price, we don't have much confidence in Spectrum Brands. Here are three reasons why there are better opportunities than SPB and a stock we'd rather own.

Why Do We Think Spectrum Brands Will Underperform?

A leader in multiple consumer product categories, Spectrum Brands (NYSE: SPB) is a diversified company with a portfolio of trusted brands spanning home appliances, garden care, personal care, and pet care.

1. Core Business Falling Behind as Demand Declines

When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.

Spectrum Brands’s demand has been falling over the last eight quarters, and on average, its organic sales have declined by 1.9% year on year.

2. Cash Burn Ignites Concerns

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.

Over the last two years, Spectrum Brands’s demanding reinvestments and muted organic growth have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 6%, meaning it lit $6.03 of cash on fire for every $100 in revenue.

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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Spectrum Brands historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.6%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Spectrum Brands, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 13.3× forward price-to-earnings (or $69.23 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better investments elsewhere. We’d suggest looking at one of our all-time favorite software stocks.

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