Snap-on currently trades at $333.59 per share and has shown little upside over the past six months, posting a middling return of 1.3%. The stock also fell short of the S&P 500’s 15.9% gain during that period.

Is now the time to buy Snap-on, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Do We Think Snap-on Will Underperform?

We're cautious about Snap-on. Here are three reasons we avoid SNA and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

Investors interested in Professional Tools and Equipment companies should track organic revenue in addition to reported revenue. This metric gives visibility into Snap-on’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, Snap-on’s organic revenue averaged 3.3% 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 Snap-on 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. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Snap-on’s margin dropped by 4.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Snap-on’s free cash flow margin for the trailing 12 months was 18.6%.

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, Snap-on’s ROIC has unfortunately decreased. 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 cheer for all companies making their customers lives easier, but in the case of Snap-on, we’ll be cheering from the sidelines. With its shares lagging the market recently, the stock trades at 17.4× forward P/E (or $333.59 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.

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