Martin Marietta Materials trades at $618.09 per share and has stayed right on track with the overall market, gaining 7.3% over the last six months. At the same time, the S&P 500 has returned 8.2%.
Is there a buying opportunity in Martin Marietta Materials, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Martin Marietta Materials Not Exciting?
We're cautious about Martin Marietta Materials. Here are three reasons you should be careful with MLM and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Martin Marietta Materials’s sales grew at a mediocre 7.4% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector.
2. Projected Revenue Growth Is Slim
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 Martin Marietta Materials’s revenue to rise by 5.5%. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.
3. Recent EPS Growth Below Our Standards
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Martin Marietta Materials’s EPS grew at a weak 3.9% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its flat revenue and tells us management responded to softer demand by adapting its cost structure.
Final Judgment
Martin Marietta Materials isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 30.5× forward P/E (or $618.09 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.
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