3 Reasons LMT is Risky and 1 Stock to Buy Instead

Lockheed Martin has been treading water for the past six months, holding steady at $484.

Is now the time to buy Lockheed Martin, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Lockheed Martin Will Underperform?

We're sitting this one out for now. Here are three reasons why we avoid LMT and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Lockheed Martin grew its sales at a sluggish 3.3% compounded annual growth rate. This was below our standard for the industrials sector.

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.

Lockheed Martin’s flat EPS over the last five years was below its 3.3% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

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. Over the last few years, Lockheed Martin’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

We see the value of companies helping their customers, but in the case of Lockheed Martin, we’re out. That said, the stock currently trades at 17× forward P/E (or $484 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.

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