What a brutal six months it’s been for WillScot Mobile Mini. The stock has dropped 39.6% and now trades at $22.86, rattling many shareholders. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

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

Despite the more favorable entry price, we're cautious about WillScot Mobile Mini. Here are three reasons why we avoid WSC and a stock we'd rather own.

Why Is WillScot Mobile Mini Not Exciting?

Originally focusing on mobile offices for construction sites, WillScot (NASDAQ:WSC) provides ready-to-use temporary spaces, largely for longer-term lease.

1. Lackluster Revenue Growth

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. WillScot Mobile Mini’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 5.7% over the last two years was well below its five-year trend.

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 WillScot Mobile Mini’s revenue to stall, a deceleration versus its 5.7% annualized growth for the past two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

WillScot Mobile Mini historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.9%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

Final Judgment

WillScot Mobile Mini isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 12.5× forward price-to-earnings (or $22.86 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d recommend looking at one of our top digital advertising picks.

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