Over the past six months, Owens Corning’s shares (currently trading at $145.26) have posted a disappointing 13.9% loss, well below the S&P 500’s 6.2% 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 Owens Corning, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Owens Corning Not Exciting?

Even though the stock has become cheaper, we're swiping left on Owens Corning for now. Here are three reasons why you should be careful with OC and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

Investors interested in Home Construction Materials companies should track organic revenue in addition to reported revenue. This metric gives visibility into Owens Corning’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, Owens Corning’s organic revenue averaged 4.4% 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 Owens Corning 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. 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 Owens Corning’s revenue to drop by 6.7%, a decrease from its 9.6% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will see some demand headwinds.

3. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Owens Corning’s margin dropped by 4.8 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle. Owens Corning’s free cash flow margin for the trailing 12 months was 10%.

Final Judgment

Owens Corning’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 9.8× forward P/E (or $145.26 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at the most entrenched endpoint security platform on the market.

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