Monro’s 17.4% return over the past six months has outpaced the S&P 500 by 13.3%, and its stock price has climbed to $17.67 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Monro, 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.
Why Do We Think Monro Will Underperform?
We’re happy investors have made money, but we're swiping left on Monro for now. Here are three reasons there are better opportunities than MNRO and a stock we'd rather own.
1. Stores Are Closing, a Headwind for Revenue
A retailer’s store count influences how much it can sell and how quickly revenue can grow.
Monro listed 1,115 locations in the latest quarter and has generally closed its stores over the last two years, averaging 5.7% annual declines.
When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.
2. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.
Monro’s demand has been shrinking over the last two years as its same-store sales have averaged 1.3% annual declines.
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 Monro, its EPS declined by 30.4% 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.
Final Judgment
We see the value of companies helping consumers, but in the case of Monro, we’re out. With its shares outperforming the market lately, the stock trades at 29× forward P/E (or $17.67 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at one of our all-time favorite software stocks.
Stocks We Would Buy Instead of Monro
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