Over the past six months, Churchill Downs’s shares (currently trading at $95.98) have posted a disappointing 14% loss, well below the S&P 500’s 16.5% gain. This may have investors wondering how to approach the situation.
Is now the time to buy Churchill Downs, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Churchill Downs Not Exciting?
Despite the more favorable entry price, we're swiping left on Churchill Downs for now. Here are three reasons we avoid CHDN and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Churchill Downs’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 13.6% over the last two years was well below its five-year trend. 
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 Churchill Downs’s revenue to rise by 5.4%, a deceleration versus its 22.5% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will see some demand headwinds.
3. Previous Growth Initiatives Haven’t Impressed
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).
Churchill Downs historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.9%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
Final Judgment
Churchill Downs isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 14.3× forward P/E (or $95.98 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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