Johnson Outdoors has been treading water for the past six months, recording a small loss of 1.6% while holding steady at $33. The stock also fell short of the S&P 500’s 7.5% gain during that period.

Is there a buying opportunity in Johnson Outdoors, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

We don't have much confidence in Johnson Outdoors. Here are three reasons why we avoid JOUT and a stock we'd rather own.

Why Do We Think Johnson Outdoors Will Underperform?

Operating in locations worldwide, Johnson Outdoors (NASDAQ:JOUT) specializes in innovative outdoor recreational products for adventurers worldwide.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Johnson Outdoors’s 1.1% annualized revenue growth over the last five years was weak. This was below our standards.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Johnson Outdoors, its EPS declined by 21.3% annually over the last five years while its revenue grew by 1.1%. This tells us the company became less profitable on a per-share basis as it expanded.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We typically prefer to invest in companies with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. Over the last few years, Johnson Outdoors’s ROIC has decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Johnson Outdoors, we’ll be cheering from the sidelines. With its shares underperforming the market lately, the stock trades at 23× forward price-to-earnings (or $33 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at Wabtec, a leading provider of locomotive services benefiting from an upgrade cycle.

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