Snap-on has been treading water for the past six months, recording a small return of 0.6% while holding steady at $391.86. The stock also fell short of the S&P 500’s 12.3% gain during that period.
Is there a buying opportunity in Snap-on, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Snap-on Not Exciting?
We’re cautious about Snap-on. Here are three reasons you should be careful with SNA, plus one stock we’d rather own.
1. Core Business Falling Behind as Demand Plateaus
In addition to reported revenue, organic revenue is a useful data point for analyzing Professional Tools and Equipment companies. This metric gives visibility into Snap-on’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, Snap-on 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 Snap-on 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 Barely Growing
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.
Snap-on’s EPS grew at 6.1% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 3.3% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
Unfortunately, Snap-on’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
Snap-on isn’t a terrible business, but it doesn’t pass our bar. With its shares trailing the market in recent months, the stock trades at 19.1× forward P/E (or $391.86 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We’re pretty confident there are more exciting stocks to buy at the moment. Let us point you toward the Amazon and PayPal of Latin America.
Stocks We Would Buy Instead of Snap-on
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