Tyson Foods currently trades at $57.74 per share and has shown little upside over the past six months, posting a middling return of 1.5%. The stock also fell short of the S&P 500’s 10% gain during that period.
Is there a buying opportunity in Tyson Foods, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.We don't have much confidence in Tyson Foods. Here are three reasons why you should be careful with TSN and a stock we'd rather own.
Why Do We Think Tyson Foods Will Underperform?
Started as a simple trucking business, Tyson Foods (NYSE:TSN) is one of the world’s largest producers of chicken, beef, and pork.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Tyson Foods’s sales grew at a tepid 4.3% compounded annual growth rate over the last three years. This fell short of our benchmark for the consumer staples sector. 
2. Low Gross Margin Reveals Weak Structural Profitability
All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.
Tyson Foods has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 6.2% gross margin over the last two years. That means Tyson Foods paid its suppliers a lot of money ($93.80 for every $100 in revenue) to run its business. 
3. 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.
Sadly for Tyson Foods, its EPS declined by 27.9% annually over the last three years while its revenue grew by 4.3%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Tyson Foods falls short of our quality standards. With its shares lagging the market recently, the stock trades at 16.8× forward price-to-earnings (or $57.74 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better investments elsewhere. We’d recommend looking at Wabtec, a leading provider of locomotive services benefiting from an upgrade cycle.
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