Although the S&P 500 is down 2.4% over the past six months, Ingram Micro’s stock price has fallen further to $19.13, losing shareholders 17.9% of their capital. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Ingram Micro, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Ingram Micro Will Underperform?
Even with the cheaper entry price, we're swiping left on Ingram Micro for now. Here are three reasons why INGM doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Ingram Micro’s sales grew at a sluggish 1.3% compounded annual growth rate over the last five years. This was below our standards. 
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.
Ingram Micro’s full-year EPS dropped 20.5%, or 9.8% annually, over the last two years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Ingram Micro’s low margin of safety could leave its stock price susceptible to large downswings.
3. Breakeven Free Cash Flow Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Ingram Micro broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.
Final Judgment
Ingram Micro falls short of our quality standards. Following the recent decline, the stock trades at 6.3× forward P/E (or $19.13 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 Charlie Munger’s all-time favorite businesses.
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