What a brutal six months it’s been for Hanesbrands. The stock has dropped 44% and now trades at $4.99, rattling many shareholders. This might have investors contemplating their next move.

Is there a buying opportunity in Hanesbrands, 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.

Why Do We Think Hanesbrands Will Underperform?

Even though the stock has become cheaper, we're cautious about Hanesbrands. Here are three reasons why you should be careful with HBI and a stock we'd rather own.

1. Declining Constant Currency Revenue, Demand Takes a Hit

Investors interested in Apparel and Accessories companies should track constant currency revenue in addition to reported revenue. This metric excludes currency movements, which are outside of Hanesbrands’s control and are not indicative of underlying demand.

Over the last two years, Hanesbrands’s constant currency revenue averaged 4.4% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Hanesbrands might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. Revenue Projections Show Stormy Skies Ahead

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 Hanesbrands’s revenue to drop by 1.3%. Although this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.

3. 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 Hanesbrands, its EPS declined by 19% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

Final Judgment

Hanesbrands falls short of our quality standards. Following the recent decline, the stock trades at 9.6× forward P/E (or $4.99 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Stocks We Would Buy Instead of Hanesbrands

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