Although Snap-on (currently trading at $338.73 per share) has gained 8% over the last six months, it has trailed the S&P 500’s 19.8% return during that period. This might have investors contemplating their next move.

Is now the time to buy Snap-on, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.

Why Is Snap-on Not Exciting?

We don't have much confidence in Snap-on. Here are three reasons there are better opportunities than SNA and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

We can better understand Professional Tools and Equipment companies by analyzing their organic revenue. This metric gives visibility into Snap-on’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, Snap-on’s organic revenue averaged 3.6% 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 Snap-on 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. EPS Growth Has Stalled Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Snap-on’s EPS was flat over the last two years, just like its revenue. This performance was underwhelming across the board.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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, Snap-on’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Snap-on isn’t a terrible business, but it doesn’t pass our bar. With its shares lagging the market recently, the stock trades at 17.1× forward P/E (or $338.73 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at a dominant Aerospace business that has perfected its M&A strategy.

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