Even though Winnebago (currently trading at $36.44 per share) has gained 8.2% over the last six months, it has lagged the S&P 500’s 15.6% return during that period. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Winnebago, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.

Why Do We Think Winnebago Will Underperform?

We're cautious about Winnebago. Here are three reasons you should be careful with WGO and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Winnebago’s sales grew at a sluggish 3.5% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Winnebago, its EPS declined by 8.3% annually over the last five years while its revenue grew by 3.5%. This tells us the company became less profitable on a per-share basis as it expanded.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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, Winnebago’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

We see the value of companies helping their customers, but in the case of Winnebago, we’re out. With its shares trailing the market in recent months, the stock trades at 15.4× forward P/E (or $36.44 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.

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