Molson Coors currently trades at $49.87 per share and has shown little upside over the past six months, posting a small loss of 4.3%. The stock also fell short of the S&P 500’s 8.1% gain during that period.

Is now the time to buy Molson Coors, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Do We Think Molson Coors Will Underperform?

We're swiping left on Molson Coors for now. Here are three reasons there are better opportunities than TAP and a stock we'd rather own.

1. Demand Slipping as Sales Volumes Decline

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

Molson Coors’s average quarterly sales volumes have shrunk by 5.6% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable.

2. Shrinking Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Looking at the trend in its profitability, Molson Coors’s operating margin decreased by 33.7 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Molson Coors’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its operating margin for the trailing 12 months was negative 20.3%.

3. Previous Growth Initiatives Haven’t Paid Off Yet

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).

Molson Coors’s five-year average ROIC was negative 0.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer staples sector.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Molson Coors, we’ll be cheering from the sidelines. With its shares underperforming the market lately, the stock trades at 9.2× forward P/E (or $49.87 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Stocks We Would Buy Instead of Molson Coors

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