3 Reasons to Sell MGPI and 1 Stock to Buy Instead

Over the last six months, MGP Ingredients’s shares have sunk to $30, producing a disappointing 16.5% loss - a stark contrast to the S&P 500’s 5.2% gain. This may have investors wondering how to approach the situation.

Is now the time to buy MGP Ingredients, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think MGP Ingredients Will Underperform?

Despite the more favorable entry price, we don't have much confidence in MGP Ingredients. Here are three reasons why there are better opportunities than MGPI and a stock we'd rather own.

1. Revenue Spiraling Downwards

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. MGP Ingredients struggled to consistently generate demand over the last three years as its sales dropped at a 2.8% annual rate. This was below our standards and is a sign of poor business quality.

2. Revenue Projections Show Stormy Skies Ahead

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 MGP Ingredients’s revenue to drop by 19.8%, a decrease from This projection doesn't excite us and suggests its products will face some demand challenges.

3. Shrinking Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Looking at the trend in its profitability, MGP Ingredients’s operating margin decreased by 10 percentage points over the last year. Even though its historical margin was healthy, shareholders will want to see MGP Ingredients become more profitable in the future. Its operating margin for the trailing 12 months was 6.8%.

Final Judgment

We see the value of companies helping consumers, but in the case of MGP Ingredients, we’re out. Following the recent decline, the stock trades at 11× forward P/E (or $30 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now. Let us point you toward an all-weather company that owns household favorite Taco Bell.

Stocks We Would Buy Instead of MGP Ingredients

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