Over the past six months, Ingredion’s stock price fell to $96.75. Shareholders have lost 12.9% of their capital, which is disappointing considering the S&P 500 has climbed by 7.8%. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Ingredion, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Ingredion Not Exciting?
Despite the more favorable entry price, we’re cautious about Ingredion. Here are three reasons why there are better opportunities than INGR, plus one stock we’d rather own.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Ingredion’s demand was weak and its revenue declined by 4.2% per year. This was below our standards and signals it’s a lower quality business.
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 Ingredion’s revenue to rise by 1.7%. While this projection implies its newer products will catalyze better top-line performance, it is still below the sector average.
3. 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, Ingredion’s margin dropped by 7.1 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity. Ingredion’s free cash flow margin for the trailing 12 months was 6.2%.
Final Judgment
Ingredion isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 8.6× forward P/E (or $96.75 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We’re fairly confident there are better investments elsewhere. We’d suggest looking at our favorite semiconductor picks and shovels play.
Stocks We Would Buy Instead of Ingredion
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