3 Reasons MAS is Risky and 1 Stock to Buy Instead

Masco’s stock price has taken a beating over the past six months, shedding 21.8% of its value and falling to $63.32 per share. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in Masco, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Masco Will Underperform?

Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why MAS doesn't excite us 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 4% 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 Shows Limited Upside

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 stall. While this projection indicates its newer products and services will fuel 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. Unfortunately, Masco’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Masco doesn’t pass our quality test. Following the recent decline, the stock trades at 14.6× forward P/E (or $63.32 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now. We’d recommend looking at the most dominant software business in the world.

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