Utz’s stock price has taken a beating over the past six months, shedding 28.1% of its value and falling to $12.29 per share. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Utz, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Utz Will Underperform?
Even though the stock has become cheaper, we're cautious about Utz. Here are three reasons why UTZ doesn't excite us and a stock we'd rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.
The demand for Utz’s products has been stable over the last eight quarters but fell behind the broader sector. On average, the company has posted feeble year-on-year organic revenue growth of 1.9%. 
2. Fewer Distribution Channels Limit its Ceiling
With $1.41 billion in revenue over the past 12 months, Utz is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.
3. Previous Growth Initiatives Haven’t Paid Off Yet
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Utz historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.6%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.
Final Judgment
Utz falls short of our quality standards. Following the recent decline, the stock trades at 14.1× forward P/E (or $12.29 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment. We’d recommend looking at the Amazon and PayPal of Latin America.
Stocks We Would Buy Instead of Utz
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