Even during a down period for the markets, Lockheed Martin has gone against the grain, climbing to $619.00. Its shares have yielded a 24% return over the last six months, beating the S&P 500 by 26.8%. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Lockheed Martin, 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 Do We Think Lockheed Martin Will Underperform?
We’re glad investors have benefited from the price increase, but we're cautious about Lockheed Martin. Here are three reasons there are better opportunities than LMT and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Lockheed Martin’s sales grew at a sluggish 2.8% compounded annual growth rate over the last five years. This fell short of our benchmarks.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Lockheed Martin, its EPS declined by 2.6% annually over the last five years while its revenue grew by 2.8%. 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
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, Lockheed Martin’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
We cheer for all companies making their customers lives easier, but in the case of Lockheed Martin, we’ll be cheering from the sidelines. With its shares topping the market in recent months, the stock trades at 20.2× forward P/E (or $619.00 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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