Central Garden & Pet (CENT): Should You Buy, Sell, or Hold After Q4 Results?

Central Garden & Pet: Recent Performance Overview

Central Garden & Pet is currently priced at $39.25 per share, closely mirroring the broader market with an 8.5% gain over the past six months. In comparison, the S&P 500 has increased by 7.2% during the same period.

Is Central Garden & Pet a smart addition to your portfolio, or does it carry unnecessary risk?

Why We Believe Central Garden & Pet May Lag Behind

Our outlook on Central Garden & Pet is cautious. Below, we outline three reasons we’re steering clear of CENT, along with a stock we prefer instead.

1. Core Business Faces Headwinds as Organic Sales Drop

Organic revenue growth is a key indicator of a company’s true performance, as it excludes the effects of acquisitions, divestitures, and currency swings. Over the past eight quarters, Central Garden & Pet has seen declining demand, with average organic sales shrinking by 3% year over year.

Central Garden & Pet Year-On-Year Organic Revenue Growth

2. Modest Revenue Growth Forecasted

Wall Street’s revenue forecasts offer a glimpse into a company’s future prospects. While these estimates aren’t always precise, accelerating growth tends to lift valuations and share prices, whereas slowing growth can have the opposite effect. Analysts expect Central Garden & Pet’s revenue to grow by just 1.1% over the next year. Although this suggests some improvement from new products, it still trails the industry average.

3. Past Growth Efforts Have Underwhelmed

Evaluating a company’s growth also means considering how efficiently it uses capital. Return on Invested Capital (ROIC) measures how much operating profit is generated for every dollar of capital employed. Central Garden & Pet’s five-year average ROIC stands at 8.3%, which is lackluster compared to leading consumer staples companies that regularly achieve 20% or more.

Central Garden & Pet Trailing 12-Month Return On Invested Capital

Our Verdict

Central Garden & Pet does not meet our standards for quality investments. While its current valuation of 14.1× forward P/E (or $39.25 per share) appears fair, the company’s weak fundamentals introduce significant downside risk. We believe there are more attractive opportunities available. For example, consider a resilient business like the owner of Taco Bell.

Stocks We Prefer Over Central Garden & Pet

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