Charles River Laboratories has had an impressive run over the past six months as its shares have beaten the S&P 500 by 20.5%. The stock now trades at $189.18, marking a 27% gain. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy Charles River Laboratories, 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 Is Charles River Laboratories Not Exciting?

We’re happy investors have made money, but we're swiping left on Charles River Laboratories for now. Here are three reasons you should be careful with CRL and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

In addition to reported revenue, organic revenue is a useful data point for analyzing Drug Development Inputs & Services companies. This metric gives visibility into Charles River Laboratories’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Charles River Laboratories’s organic revenue averaged 2.3% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Charles River Laboratories might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

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 Charles River Laboratories’s revenue to stall. Although this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.

3. New Investments Fail to Bear Fruit as ROIC Declines

We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.

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, Charles River Laboratories’s ROIC has unfortunately decreased. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

Charles River Laboratories isn’t a terrible business, but it doesn’t pass our bar. With its shares beating the market recently, the stock trades at 17.5× forward P/E (or $189.18 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

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