RTX trades at $198.71 and has moved in lockstep with the market. Its shares have returned 5.6% over the last six months while the S&P 500 has gained 8.4%.
Is now the time to buy RTX, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is RTX Not Exciting?
We’re cautious about RTX. Here are two reasons you should be careful with RTX, plus one stock we’d rather own.
1. Projected Revenue Growth Is Slim
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 RTX’s revenue to rise by 5.9%, a slight deceleration versus its 8% annualized growth for the past five years. This projection doesn’t excite us and indicates its products and services will face some demand challenges.
2. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
RTX historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.7%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.
Final Judgment
RTX’s business quality ultimately falls short of our standards. That said, the stock currently trades at 27.8× forward P/E (or $198.71 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re pretty confident there are superior stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.
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