3 Reasons to Avoid RTX and 1 Stock to Buy Instead

In a sliding market, RTX has defied the odds, trading up to $138.57 per share. Its 16.9% gain since December 2024 has outpaced the S&P 500’s 1.8% drop. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy RTX, 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 Is RTX Not Exciting?

Despite the momentum, we don't have much confidence in RTX. Here are three reasons why you should be careful with RTX and a stock we'd rather own.

1. 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 4%, a deceleration versus its 12.3% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will see some demand headwinds.

2. EPS Growth Has Stalled

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

RTX’s flat EPS over the last five years was below its 12.3% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

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 2.5%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

Final Judgment

RTX’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 22.1× forward P/E (or $138.57 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 pretty confident there are superior stocks to buy right now. We’d recommend looking at a dominant Aerospace business that has perfected its M&A strategy.

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