3 Reasons to Sell KMT and 1 Stock to Buy Instead

Kennametal currently trades at $25.22 per share and has shown little upside over the past six months, posting a middling return of 4.1%.

Is there a buying opportunity in Kennametal, 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 Kennametal Will Underperform?

We don't have much confidence in Kennametal. Here are three reasons why there are better opportunities than KMT and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

In addition to reported revenue, organic revenue is a useful data point for analyzing Professional Tools and Equipment companies. This metric gives visibility into Kennametal’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, Kennametal’s organic revenue averaged 1.2% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Kennametal might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

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 Kennametal’s revenue to rise by 1.1%. While this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.

3. EPS Barely Growing

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

Kennametal’s EPS grew at an unimpressive 4.8% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 1.1% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.

Final Judgment

We see the value of companies helping their customers, but in the case of Kennametal, we’re out. That said, the stock currently trades at 20.9× forward P/E (or $25.22 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment. We’d recommend looking at the Amazon and PayPal of Latin America.

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