Over the past six months, Campbell’s stock price fell to $32.23. Shareholders have lost 16.5% of their capital, which is disappointing considering the S&P 500 has climbed by 3.1%. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Campbell's, 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 Is Campbell's Not Exciting?
Despite the more favorable entry price, we're cautious about Campbell's. Here are three reasons why there are better opportunities than CPB and a stock we'd rather own.
1. Demand Slipping as Sales Volumes Decline
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
Campbell’s average quarterly sales volumes have shrunk by 1.1% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable. 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Campbell’s revenue to stall, a deceleration versus This projection doesn't excite us and implies its products will see some demand headwinds.
3. Shrinking Operating Margin
Operating margin is a key profitability metric because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.
Analyzing the trend in its profitability, Campbell’s operating margin decreased by 3.6 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 9.1%.
Final Judgment
Campbell's isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 10.6× forward P/E (or $32.23 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
Stocks We Would Buy Instead of Campbell's
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