Hain Celestial’s stock price has taken a beating over the past six months, shedding 26.5% of its value and falling to $1.19 per share. This might have investors contemplating their next move.

Is there a buying opportunity in Hain Celestial, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.

Why Do We Think Hain Celestial Will Underperform?

Despite the more favorable entry price, we're swiping left on Hain Celestial for now. Here are three reasons we avoid HAIN and a stock we'd rather own.

1. Core Business Falling Behind as Organic Sales Decline

When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.

Hain Celestial’s demand has been falling over the last eight quarters, and on average, its organic sales have declined by 5.2% year on year.

2. EPS Trending Down

Analyzing the change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Hain Celestial, its EPS declined by 61.4% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

3. High Debt Levels Increase Risk

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Hain Celestial’s $716.2 million of debt exceeds the $47.89 million of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $111.1 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Hain Celestial could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Hain Celestial can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

Final Judgment

Hain Celestial falls short of our quality standards. After the recent drawdown, the stock trades at 8.4× forward P/E (or $1.19 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d recommend looking at one of our all-time favorite software stocks.

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