Monro (MNRO): Buy, Sell, or Hold Post Q1 Earnings?

What a brutal six months it’s been for Monro. The stock has dropped 32.2% and now trades at $14.10, rattling many shareholders. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Is now the time to buy Monro, 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 Do We Think Monro Will Underperform?

Even with the cheaper entry price, we don’t have much confidence in Monro. Here are three reasons we avoid MNRO, plus one stock we’d rather own.

1. Stores Are Closing, a Headwind for Revenue

The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.

Monro operated 1,115 locations in the latest quarter. Over the last two years, the company has generally closed its stores, averaging 7.1% annual declines.

When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.

2. Shrinking Same-Store Sales Indicate Waning Demand

Same-store sales show the change in sales for a retailer’s e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.

Monro’s demand has been shrinking over the last two years as its same-store sales have averaged 1.2% annual declines.

3. 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 Monro, its EPS declined by 31.9% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Monro, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 43.2× forward P/E (or $14.10 per share). This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward our favorite semiconductor picks and shovels play.

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