While the S&P 500 is up 13% since May 2024, Otis (currently trading at $102.52 per share) has lagged behind, posting a return of 7.6%. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

We're swiping left on Otis for now. Here are three reasons why OTIS doesn't excite us and a stock we'd rather own.

Why Is Otis Not Exciting?

Credited with inventing the first hydraulic passenger elevator, Otis Worldwide (NYSE:OTIS) is an elevator and escalator manufacturing, installation and service company.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Otis’s sales grew at a sluggish 1.7% compounded annual growth rate over the last five years. This was below our standards.

2. Slow Organic Growth Suggests Waning Demand In Core Business

We can better understand General Industrial Machinery companies by analyzing their organic revenue. This metric gives visibility into Otis’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, Otis’s organic revenue averaged 4% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

3. 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.

Sell-side analysts expect Otis’s revenue to grow by 3.8% over the next 12 months, an improvement versus its 2% annualized growth rate for the last two years. While this projection suggests its newer products and services will catalyze better performance, it is still below the sector average.

Final Judgment

Otis’s business quality ultimately falls short of our standards. With its shares trailing the market in recent months, the stock trades at 25x forward price-to-earnings (or $102.52 per share). This multiple tells us a lot of good news is priced in - you can find better investment opportunities elsewhere. We’d recommend looking at Cloudflare, one of our top software picks that could be a home run with edge computing.

Stocks We Would Buy Instead of Otis

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market to cap off the year - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

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