In This Article:
Carrier Global’s stock price has taken a beating over the past six months, shedding 25.4% of its value and falling to $59.98 per share. This might have investors contemplating their next move.
Is there a buying opportunity in Carrier Global, 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 though the stock has become cheaper, we're swiping left on Carrier Global for now. Here are three reasons why there are better opportunities than CARR and a stock we'd rather own.
Why Do We Think Carrier Global Will Underperform?
Founded by the inventor of air conditioning, Carrier Global (NYSE:CARR) manufactures heating, ventilation, air conditioning, and refrigeration products.
1. Slow Organic Growth Suggests Waning Demand In Core Business
Investors interested in HVAC and Water Systems companies should track organic revenue in addition to reported revenue. This metric gives visibility into Carrier Global’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, Carrier Global’s organic revenue averaged 2.7% 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. 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, Carrier Global’s margin dropped by 7.7 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Carrier Global’s free cash flow margin for the trailing 12 months was breakeven.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Carrier Global’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Carrier Global, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 20.4× forward price-to-earnings (or $59.98 per share). This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there. Let us point you toward a top digital advertising platform riding the creator economy.