Charles River Laboratories’s stock price has taken a beating over the past six months, shedding 20.8% of its value and falling to $145.05 per share. This may have investors wondering how to approach the situation.
Is now the time to buy Charles River Laboratories, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Charles River Laboratories Not Exciting?
Even though the stock has become cheaper, we're swiping left on Charles River Laboratories for now. Here are three reasons why you should be careful with CRL and a stock we'd rather own.
1. Core Business Falling Behind as Demand Plateaus
Investors interested in Drug Development Inputs & Services companies should track organic revenue in addition to reported revenue. 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 failed to grow its organic revenue. 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 accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. Revenue Projections Show Stormy Skies Ahead
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 drop by 2.6%, a decrease from its 8.1% annualized growth for the past five years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.
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. Unfortunately, Charles River Laboratories’s ROIC has decreased over the last few years. 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. Following the recent decline, the stock trades at 15.1× forward P/E (or $145.05 per share). Investors with a higher risk tolerance might like the company, 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 recommend looking at one of our all-time favorite software stocks.
Stocks We Would Buy Instead of Charles River Laboratories
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