3 Reasons to Sell SHW and 1 Stock to Buy Instead

Sherwin-Williams has been treading water for the past six months, recording a small return of 2.6% while holding steady at $360.98.

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

Why Is Sherwin-Williams Not Exciting?

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

1. Core Business Falling Behind as Demand Plateaus

In addition to reported revenue, organic revenue is a useful data point for analyzing Building Materials companies. This metric gives visibility into Sherwin-Williams’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, Sherwin-Williams failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Sherwin-Williams might have to lean into acquisitions to accelerate growth, 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 Sherwin-Williams’s revenue to rise by 2.5%. While this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.

3. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Sherwin-Williams’s margin dropped by 7.6 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Sherwin-Williams’s free cash flow margin for the trailing 12 months was 6%.

Final Judgment

Sherwin-Williams’s business quality ultimately falls short of our standards. That said, the stock currently trades at 28.6× forward P/E (or $360.98 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. Let us point you toward one of our top software and edge computing picks.

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