Over the past six months, Caleres’s stock price fell to $15.14. Shareholders have lost 12.6% of their capital, which is disappointing considering the S&P 500 has climbed by 5.8%. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Caleres, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Caleres Will Underperform?
Even with the cheaper entry price, we're cautious about Caleres. Here are three reasons why CAL doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Caleres struggled to consistently increase demand as its $2.68 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and is a sign of poor business quality. 
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 Caleres’s revenue to stall. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.
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. Unfortunately, Caleres’s ROIC averaged 3.6 percentage point decreases over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Caleres falls short of our quality standards. Following the recent decline, the stock trades at 4.9× forward P/E (or $15.14 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
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