3 Reasons to Avoid FTV and 1 Stock to Buy Instead

Fortive’s stock price has taken a beating over the past six months, shedding 37.5% of its value and falling to $50.14 per share. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in Fortive, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Fortive Will Underperform?

Even though the stock has become cheaper, we're cautious about Fortive. Here are three reasons why FTV doesn't excite us and a stock we'd rather own.

1. Slow Organic Growth Suggests Waning Demand In Core Business

In addition to reported revenue, organic revenue is a useful data point for analyzing Professional Tools and Equipment companies. This metric gives visibility into Fortive’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, Fortive’s organic revenue averaged 4.3% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

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 Fortive’s revenue to rise by 1.9%. While this projection implies its newer products and services will spur better top-line performance, it is still below the sector average.

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? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Fortive historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.4%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Fortive, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 12.2× forward P/E (or $50.14 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere. We’d recommend looking at one of our all-time favorite software stocks.

Stocks We Would Buy Instead of Fortive

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