3 Reasons to Sell MDLZ and 1 Stock to Buy Instead

Mondelez has had an impressive run over the past six months as its shares have beaten the S&P 500 by 11.6%. The stock now trades at $67.14, marking a 16% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

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

Why Is Mondelez Not Exciting?

We’re glad investors have benefited from the price increase, but we don't have much confidence in Mondelez. Here are three reasons why we avoid MDLZ and a stock we'd rather own.

1. Shrinking Operating Margin

Operating margin is a key profitability metric because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.

Looking at the trend in its profitability, Mondelez’s operating margin decreased by 6.8 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 11.8%.

2. EPS Barely Growing

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

Mondelez’s EPS grew at an unimpressive 3.5% compounded annual growth rate over the last three years, lower than its 7.7% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

3. Previous Growth Initiatives Haven’t Impressed

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).

Mondelez historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Final Judgment

Mondelez’s business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at 22.4× forward P/E (or $67.14 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.

Stocks We Like More Than Mondelez

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