Over the past six months, 3M’s stock price fell to $155. Shareholders have lost 6.4% of their capital, which is disappointing considering the S&P 500 has climbed by 7.5%. This might have investors contemplating their next move.
Is now the time to buy 3M, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think 3M Will Underperform?
Despite the more favorable entry price, we’re swiping left on 3M for now. Here are three reasons why MMM doesn’t excite us, plus one stock we’d rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
Investors interested in General Industrial Machinery companies should track organic revenue in addition to reported revenue. This metric gives visibility into 3M’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, 3M’s organic revenue averaged 1.4% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
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 3M’s revenue to rise by 3%, close to its 5.6% annualized declines for the past five years. This projection doesn’t excite us and suggests its newer products and services will not lead to better top-line performance yet.
3. 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 3M, its EPS and revenue declined by 2.3% and 5.6% annually over the last five 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, 3M’s low margin of safety could leave its stock price susceptible to large downswings.
Final Judgment
We see the value of companies helping their customers, but in the case of 3M, we’re out. After the recent drawdown, the stock trades at 17.6× forward P/E (or $155 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better stocks to buy right now. We’d recommend looking at the most entrenched endpoint security platform on the market.
Stocks We Would Buy Instead of 3M
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