Edgewell Personal Care has followed the market’s trajectory closely. The stock is down 14.4% to $28.98 per share over the past six months while the S&P 500 has lost 14.2%. This might have investors contemplating their next move.
Is now the time to buy Edgewell Personal Care, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Even though the stock has become cheaper, we don't have much confidence in Edgewell Personal Care. Here are three reasons why we avoid EPC and a stock we'd rather own.
Why Do We Think Edgewell Personal Care Will Underperform?
Boasting brands such as Banana Boat, Schick, and Skintimate, Edgewell Personal Care (NYSE:EPC) sells personal care products in the skin and sun care, shave, and feminine care categories.
1. Slow Organic Growth Suggests Waning Demand In Core Business
When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.
The demand for Edgewell Personal Care’s products has been stable over the last eight quarters but fell behind the broader sector. On average, the company has posted feeble year-on-year organic revenue growth of 2.5%. 
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 Edgewell Personal Care’s revenue to stall, a slight deceleration versus its 2.2% annualized growth for the past three years. This projection is underwhelming and suggests its products will face some demand challenges.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Edgewell Personal Care’s margin dropped by 2.7 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity. Edgewell Personal Care’s free cash flow margin for the trailing 12 months was 5.4%.
Final Judgment
We see the value of companies helping consumers, but in the case of Edgewell Personal Care, we’re out. Following the recent decline, the stock trades at 9.1× forward price-to-earnings (or $28.98 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. Let us point you toward the most dominant software business in the world.
Stocks We Would Buy Instead of Edgewell Personal Care
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