Worthington (WOR): Buy, Sell, or Hold Post Q4 Earnings?

Over the last six months, Worthington’s shares have sunk to $55.73, producing a disappointing 16.5% loss - a stark contrast to the S&P 500’s 7.3% gain. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

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

Why Do We Think Worthington Will Underperform?

Despite the more favorable entry price, we're cautious about Worthington. Here are three reasons there are better opportunities than WOR 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. Over the last five years, Worthington’s demand was weak and its revenue declined by 14.9% per year. This was below our standards and is a sign of poor business quality.

2. EPS Took a Dip Over the Last Two Years

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for Worthington, its EPS declined by more than its revenue over the last two years, dropping 28.8%. This tells us the company struggled to adjust to shrinking demand.

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, Worthington’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

Worthington doesn’t pass our quality test. After the recent drawdown, the stock trades at 15.2× forward P/E (or $55.73 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

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