Martin Marietta Materials has been treading water for the past six months, recording a small loss of 2.7% while holding steady at $608.55. The stock also fell short of the S&P 500’s 5.4% gain during that period.
Is there a buying opportunity in Martin Marietta Materials, 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 Is Martin Marietta Materials Not Exciting?
We're swiping left on Martin Marietta Materials for now. Here are three reasons we avoid MLM and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Martin Marietta Materials’s 6.7% 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
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Sadly for Martin Marietta Materials, its EPS and revenue declined by 1.3% and 1.7% annually over the last two years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Martin Marietta Materials’s low margin of safety could leave its stock price susceptible to large downswings.
3. 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).
Martin Marietta Materials historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.6%, somewhat low compared to the best industrials companies that consistently pump out 20%+.
Final Judgment
Martin Marietta Materials isn’t a terrible business, but it doesn’t pass our quality test. With its shares lagging the market recently, the stock trades at 31.1× forward P/E (or $608.55 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better stocks to buy right now. We’d recommend looking at one of our top digital advertising picks.
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