Over the past six months, Icahn Enterprises’s shares (currently trading at $9.46) have posted a disappointing 5.2% loss, well below the S&P 500’s 5.8% gain. 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 Icahn Enterprises, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Icahn Enterprises Not Exciting?
Despite the more favorable entry price, we're cautious about Icahn Enterprises. Here are three reasons why IEP doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Icahn Enterprises grew its sales at a mediocre 6.6% compounded annual growth rate. This was below our standard for the industrials sector. 
2. 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. Unfortunately, Icahn Enterprises’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
3. Restricted Access to Capital Increases Risk
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Icahn Enterprises posted negative $247 million of EBITDA over the last 12 months, and its $13.59 billion of debt exceeds the $4.26 billion of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
We implore our readers to tread carefully because credit agencies could downgrade Icahn Enterprises if its unprofitable ways continue, making incremental borrowing more expensive and restricting growth prospects. The company could also be backed into a corner if the market turns unexpectedly. We hope Icahn Enterprises can improve its profitability and remain cautious until then.
Final Judgment
Icahn Enterprises isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at $9.46 per share (or a forward price-to-sales ratio of 0.5×). The market typically values companies like Icahn Enterprises based on their anticipated profits for the next 12 months, but there aren’t enough published estimates to arrive at a reliable number. You should avoid this stock for now - better opportunities lie elsewhere. We’d recommend looking at one of our top digital advertising picks.
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