What a brutal six months it’s been for SiteOne. The stock has dropped 22.7% and now trades at $117.95, rattling many shareholders. This might have investors contemplating their next move.
Is there a buying opportunity in SiteOne, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is SiteOne Not Exciting?
Despite the more favorable entry price, we don't have much confidence in SiteOne. Here are three reasons why we avoid SITE and a stock we'd rather own.
1. Core Business Falling Behind as Demand Plateaus
In addition to reported revenue, organic revenue is a useful data point for analyzing Specialty Equipment Distributors companies. This metric gives visibility into SiteOne’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, SiteOne failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests SiteOne might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. EPS Took a Dip Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Sadly for SiteOne, its EPS declined by 17.8% annually over the last two years while its revenue grew by 6.3%. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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. Over the last few years, SiteOne’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
SiteOne isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 29.7× forward P/E (or $117.95 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Like More Than SiteOne
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