3 Reasons to Sell SWK and 1 Stock to Buy Instead

Stanley Black & Decker has followed the market’s trajectory closely. The stock is down 7.3% to $68.90 per share over the past six months while the S&P 500 has lost 3.2%. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in Stanley Black & Decker, 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 Stanley Black & Decker Will Underperform?

Even though the stock has become cheaper, we're swiping left on Stanley Black & Decker for now. Here are three reasons there are better opportunities than SWK and a stock we'd rather own.

1. Core Business Falling Behind as Demand Plateaus

We can better understand Professional Tools and Equipment companies by analyzing their organic revenue. This metric gives visibility into Stanley Black & Decker’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, Stanley Black & Decker 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 Stanley Black & Decker 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 Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Stanley Black & Decker, its EPS declined by 12.3% annually over the last five years while its revenue grew by 3%. This tells us the company became less profitable on a per-share basis as it expanded.

3. Breakeven Free Cash Flow Limits Reinvestment Potential

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.

Stanley Black & Decker broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Final Judgment

We see the value of companies helping their customers, but in the case of Stanley Black & Decker, we’re out. Following the recent decline, the stock trades at 13.2× forward P/E (or $68.90 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.

Stocks We Like More Than Stanley Black & Decker

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