What a brutal six months it’s been for JELD-WEN. The stock has dropped 34.1% and now trades at $2.57, rattling many shareholders. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in JELD-WEN, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.

Why Do We Think JELD-WEN Will Underperform?

Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why JELD doesn't excite us and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

Investors interested in Home Construction Materials companies should track organic revenue in addition to reported revenue. This metric gives visibility into JELD-WEN’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, JELD-WEN’s organic revenue averaged 13.5% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests JELD-WEN might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. 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, JELD-WEN’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

JELD-WEN burned through $169.1 million of cash over the last year, and its $1.18 billion of debt exceeds the $106.7 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the JELD-WEN’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of JELD-WEN until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

JELD-WEN doesn’t pass our quality test. Following the recent decline, the stock trades at 1.8× forward EV-to-EBITDA (or $2.57 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. We’d suggest looking at one of our top digital advertising picks.

Stocks We Would Buy Instead of JELD-WEN

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