Over the past six months, Charles River Laboratories has been a great trade, beating the S&P 500 by 7.5%. Its stock price has climbed to $168.91, representing a healthy 10.5% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy Charles River Laboratories, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Charles River Laboratories Not Exciting?

We’re glad investors have benefited from the price increase, but we're swiping left on Charles River Laboratories for now. Here are three reasons we avoid CRL and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

In addition to reported revenue, organic revenue is a useful data point for analyzing Drug Development Inputs & Services companies. This metric gives visibility into Charles River Laboratories’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, Charles River Laboratories’s organic revenue averaged 2.2% 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 Charles River Laboratories 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. Projected Revenue Growth Shows Limited Upside

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Charles River Laboratories’s revenue to stall. Although this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.

3. 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, Charles River Laboratories’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.

Final Judgment

Charles River Laboratories’s business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at 15× forward P/E (or $168.91 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d suggest looking at a top digital advertising platform riding the creator economy.

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