Fortive has been treading water for the past six months, recording a small loss of 1.9% while holding steady at $74.30.
Is now the time to buy Fortive, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
We're cautious about Fortive. Here are three reasons why we avoid FTV and a stock we'd rather own.
Why Is Fortive Not Exciting?
Taking its name from the Latin root of "strong", Fortive (NYSE: FTV) manufactures products and develops industrial software for numerous industries.
1. Slow Organic Growth Suggests Waning Demand In Core Business
In addition to reported revenue, organic revenue is a useful data point for analyzing Professional Tools and Equipment companies. This metric gives visibility into Fortive’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, Fortive’s organic revenue averaged 3.1% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
2. Projected Revenue Growth Is Slim
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 Fortive’s revenue to rise by 1.2%, a slight deceleration versus its 3.4% annualized growth for the past two years. This projection doesn't excite us and suggests its products and services will face some demand challenges.
3. EPS Barely Growing
Analyzing the long-term 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.
Fortive’s EPS grew at a weak 1.4% compounded annual growth rate over the last five years, lower than its 6.4% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Fortive isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 18.1× forward price-to-earnings (or $74.30 per share). This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
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