Resideo has been on fire lately. In the past six months alone, the company’s stock price has rocketed 51.9%, reaching $36.56 per share. This run-up might have investors contemplating their next move.

Is there a buying opportunity in Resideo, 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 Resideo Not Exciting?

We’re glad investors have benefited from the price increase, but we don't have much confidence in Resideo. Here are three reasons you should be careful with REZI and a 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 Resideo’s revenue to rise by 2.9%, a deceleration versus its 8.8% annualized growth for the past five years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

2. 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, Resideo’s margin dropped by 22.8 percentage points over the last five years. Almost any movement in the wrong direction is undesirable because it is already burning cash. If the trend continues, it could signal it’s becoming a more capital-intensive business. Resideo’s free cash flow margin for the trailing 12 months was negative 17.9%.

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, Resideo’s ROIC has decreased 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

Resideo isn’t a terrible business, but it isn’t one of our picks. After the recent surge, the stock trades at 12.9× forward P/E (or $36.56 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. Let us point you toward a top digital advertising platform riding the creator economy.

Stocks We Would Buy Instead of Resideo

Check out the high-quality names we’ve flagged in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.