In a sliding market, Worthington has defied the odds, trading up to $46.92 per share. Its 21.6% gain since October 2024 has outpaced the S&P 500’s 8.1% drop. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Worthington, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons why you should be careful with WOR and a stock we'd rather own.
Why Do We Think Worthington Will Underperform?
Founded by a steel salesman, Worthington (NYSE:WOR) specializes in steel processing, pressure cylinders, and engineered cabs for commercial markets.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Worthington’s demand was weak over the last five years as its sales fell at a 19.4% annual rate. This wasn’t a great result and is a sign of poor business quality. 
2. EPS Took a Dip Over the Last Two Years
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.
Sadly for Worthington, its EPS and revenue declined by 21% and 49.1% annually over the last two years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Worthington’s low margin of safety could leave its stock price susceptible to large downswings.
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. Over the last few years, Worthington’s ROIC has unfortunately 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 making their customers lives easier, but in the case of Worthington, we’ll be cheering from the sidelines. With its shares outperforming the market lately, the stock trades at 16.2× forward price-to-earnings (or $46.92 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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