Howard Hughes Holdings has been treading water for the past six months, recording a small loss of 2.6% while holding steady at $62.89. The stock also fell short of the S&P 500’s 13.1% gain during that period.

Is now the time to buy Howard Hughes Holdings, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Do We Think Howard Hughes Holdings Will Underperform?

We’re passing on Howard Hughes Holdings for now. Here are three reasons why there are better opportunities than HHH, plus one 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. Over the last five years, Howard Hughes Holdings grew its sales at a 25.2% annual rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.

2. 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).

Howard Hughes Holdings historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.5%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

3. New Investments Bear Fruit as ROIC Jumps

We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.

Fortunately, Howard Hughes Holdings’s ROIC averaged 2.9 percentage point increases each year over the last few years. This is a good sign, and we hope the company can continue improving.

Final Judgment

Howard Hughes Holdings falls short of our quality standards. With its shares lagging the market recently, the stock trades at $62.89 per share (or a trailing 12-month price-to-sales ratio of 1.6×). The market typically values companies like Howard Hughes Holdings based on their anticipated profits for the next 12 months, but there aren’t enough published estimates to arrive at a reliable number. You should avoid this stock for now - better opportunities lie elsewhere. We’d suggest looking at the most dominant software business in the world.

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