3 Reasons RTX is Risky and 1 Stock to Buy Instead

Since March 2021, the S&P 500 has delivered a total return of 79.5%. But one standout stock has more than doubled the market - over the past five years, RTX has surged 170% to $204.06 per share. Its momentum hasn’t stopped as it’s also gained 32.3% in the last six months thanks to its solid quarterly results, beating the S&P by 26.7%.

Is there a buying opportunity in RTX, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is RTX Not Exciting?

We’re glad investors have benefited from the price increase, but we're cautious about RTX. Here are three reasons we avoid RTX and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, RTX’s 6.5% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the industrials sector.

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 RTX’s revenue to rise by 5.6%, a deceleration versus its 6.5% annualized growth for the past five years. This projection doesn't excite us and implies its products and services will face some demand challenges.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

RTX historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.5%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

Final Judgment

RTX isn’t a terrible business, but it isn’t one of our picks. With its shares topping the market in recent months, the stock trades at 30.6× forward P/E (or $204.06 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d recommend looking at one of our top software and edge computing picks.

Stocks We Like More Than RTX

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