3M trades at $164.70 and has moved in lockstep with the market. Its shares have returned 13.5% over the last six months while the S&P 500 has gained 14%.
Is there a buying opportunity in 3M, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think 3M Will Underperform?
We’re passing on 3M for now. Here are three reasons we avoid MMM, plus one stock we’d rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
In addition to reported revenue, organic revenue is a useful data point for analyzing General Industrial Machinery companies. This metric gives visibility into 3M’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, 3M’s organic revenue averaged 2.1% 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. 
2. 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 3M’s revenue to rise by 4.9%. While this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.
3. EPS Trending Down
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.
Sadly for 3M, its EPS and revenue declined by 3.4% and 6.5% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, 3M’s low margin of safety could leave its stock price susceptible to large downswings.
Final Judgment
3M falls short of our quality standards. That said, the stock currently trades at 17.6× forward P/E (or $164.70 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d recommend looking at the most dominant software business in the world.
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