Masco (MAS): Buy, Sell, or Hold Post Q3 Earnings?

Masco has been treading water for the past six months, recording a small loss of 1.9% while holding steady at $64.06. The stock also fell short of the S&P 500’s 10.1% gain during that period.

Is now the time to buy Masco, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.

Why Do We Think Masco Will Underperform?

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

1. Core Business Falling Behind as Demand Declines

We can better understand Home Construction Materials companies by analyzing their organic revenue. This metric gives visibility into Masco’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, Masco’s organic revenue averaged 1.7% 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 Masco 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 Masco’s revenue to rise by 2%. Although this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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, Masco’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Masco, we’ll be cheering from the sidelines. With its shares underperforming the market lately, the stock trades at 15.7× forward P/E (or $64.06 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now. We’d suggest looking at a top digital advertising platform riding the creator economy.

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