What a brutal six months it’s been for SiteOne. The stock has dropped 35.2% and now trades at $96.10, rattling many shareholders. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy SiteOne, 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 SiteOne Will Underperform?
Even with the cheaper entry price, we don’t have much confidence in SiteOne. Here are three reasons why there are better opportunities than SITE, plus one stock we’d rather own.
1. Core Business Falling Behind as Demand Plateaus
Investors interested in Specialty Equipment Distributors companies should track organic revenue in addition to reported revenue. This metric gives visibility into SiteOne’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, SiteOne failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests SiteOne might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. EPS Growth Has Stalled
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
SiteOne’s flat EPS over the last five years was below its 8.6% annualized revenue growth. 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
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Unfortunately, SiteOne’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
We cheer for all companies making their customers lives easier, but in the case of SiteOne, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 20.2× forward P/E (or $96.10 per share). At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere. We’d recommend looking at one of our top software and edge computing picks.
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