What a brutal six months it’s been for Boise Cascade. The stock has dropped 22.6% and now trades at $93.26, rattling many shareholders. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in Boise Cascade, 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 Boise Cascade Will Underperform?

Even though the stock has become cheaper, we're cautious about Boise Cascade. Here are three reasons why you should be careful with BCC and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Boise Cascade’s 6.8% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the industrials sector.

2. EPS Took a Dip Over the Last Two Years

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for Boise Cascade, its EPS declined by more than its revenue over the last two years, dropping 30.1%. This tells us the company struggled to adjust to shrinking demand.

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, Boise Cascade’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 Boise Cascade, we’re out. Following the recent decline, the stock trades at 11× forward P/E (or $93.26 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now. We’d suggest looking at one of our all-time favorite software stocks.

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