Although the S&P 500 is down 2.1% over the past six months, Pilgrim's Pride’s stock price has fallen further to $37.23, losing shareholders 8.6% of their capital. This might have investors contemplating their next move.
Is now the time to buy Pilgrim's Pride, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Pilgrim's Pride Will Underperform?
Even though the stock has become cheaper, we're swiping left on Pilgrim's Pride for now. Here are three reasons why PPC doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Pilgrim's Pride’s 1.9% annualized revenue growth over the last three years was sluggish. This fell short of our benchmarks.
2. Low Gross Margin Reveals Weak Structural Profitability
At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.
Pilgrim's Pride has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 12.8% gross margin over the last two years. Said differently, for every $100 in revenue, a chunky $87.16 went towards paying for raw materials, production of goods, transportation, and distribution. 
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Pilgrim's Pride’s margin dropped by 4.9 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity. Pilgrim's Pride’s free cash flow margin for the trailing 12 months was 3.6%.
Final Judgment
Pilgrim's Pride doesn’t pass our quality test. Following the recent decline, the stock trades at 9.3× forward P/E (or $37.23 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. Let us point you toward one of our top digital advertising picks.
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