3 Reasons IFF is Risky and 1 Stock to Buy Instead

International Flavors & Fragrances has been treading water for the past six months, recording a small loss of 2.7% while holding steady at $73.22. The stock also fell short of the S&P 500’s 8.8% gain during that period.

Is now the time to buy International Flavors & Fragrances, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think International Flavors & Fragrances Will Underperform?

We're cautious about International Flavors & Fragrances. Here are three reasons there are better opportunities than IFF and a stock we'd rather own.

1. Revenue Spiraling Downwards

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. International Flavors & Fragrances struggled to consistently generate demand over the last three years as its sales dropped at a 4.3% annual rate. This was below our standards and signals it’s a low quality business.

2. Operating Losses Sound the Alarms

Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.

Although International Flavors & Fragrances was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 10% over the last two years. Unprofitable public companies are rare in the defensive consumer staples industry, so this performance certainly caught our eye.

3. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

International Flavors & Fragrances’s five-year average ROIC was negative 4.2%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer staples sector.

Final Judgment

International Flavors & Fragrances doesn’t pass our quality test. With its shares lagging the market recently, the stock trades at 17× forward P/E (or $73.22 per share). This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at one of our all-time favorite software stocks.

Stocks We Like More Than International Flavors & Fragrances

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