3 Reasons to Avoid LZB and 1 Stock to Buy Instead

La-Z-Boy currently trades at $39.49 per share and has shown little upside over the past six months, posting a middling return of 3.1%. The stock also fell short of the S&P 500’s 13.6% gain during that period.

Is there a buying opportunity in La-Z-Boy, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.

Why Do We Think La-Z-Boy Will Underperform?

We don't have much confidence in La-Z-Boy. Here are three reasons we avoid LZB and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, La-Z-Boy’s 5.8% annualized revenue growth over the last five years was weak. This was below our standard for the consumer discretionary sector.

2. Free Cash Flow Projections Disappoint

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.

Over the next year, analysts’ consensus estimates show they’re expecting La-Z-Boy’s free cash flow margin of 5.9% for the last 12 months to remain the same.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, La-Z-Boy’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

We see the value of companies helping consumers, but in the case of La-Z-Boy, we’re out. With its shares lagging the market recently, the stock trades at 14× forward P/E (or $39.49 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.

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