Fortune Brands has gotten torched over the last six months - since September 2024, its stock price has dropped 29.4% to $62.51 per share. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Fortune Brands, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Even with the cheaper entry price, we're cautious about Fortune Brands. Here are three reasons why there are better opportunities than FBIN and a stock we'd rather own.
Why Do We Think Fortune Brands Will Underperform?
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE:FBIN) makes plumbing, security, and outdoor living products.
1. Core Business Falling Behind as Demand Declines
In addition to reported revenue, organic revenue is a useful data point for analyzing Home Construction Materials companies. This metric gives visibility into Fortune Brands’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, Fortune Brands’s organic revenue averaged 4.2% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Fortune Brands might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Fortune Brands’s EPS grew at an unimpressive 4.2% compounded annual growth rate over the last five years, lower than its 6.4% annualized revenue growth. 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, Fortune Brands’s margin dropped by 8.4 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Fortune Brands’s free cash flow margin for the trailing 12 months was 10.3%.
Final Judgment
Fortune Brands doesn’t pass our quality test. Following the recent decline, the stock trades at 13.8× forward price-to-earnings (or $62.51 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Like More Than Fortune Brands
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