Lowe’s 16.7% return over the past six months has outpaced the S&P 500 by 10.4%, and its stock price has climbed to $248.99 per share. This performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Lowe's, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.Despite the momentum, we're swiping left on Lowe's for now. Here are three reasons why we avoid LOW and a stock we'd rather own.
Why Is Lowe's Not Exciting?
Founded in North Carolina as Lowe's North Wilkesboro Hardware, the company is a home improvement retailer that sells everything from paint to tools to building materials.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Lowe’s 3.1% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the consumer retail sector. 
2. Stores Are Closing, a Headwind for Revenue
A retailer’s store count often determines how much revenue it can generate.
Lowe's operated 1,747 locations in the latest quarter. Over the last two years, the company has generally closed its stores, averaging 5.7% annual declines.
When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.
3. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Lowe’s demand has been shrinking over the last two years as its same-store sales have averaged 3.9% annual declines.
Final Judgment
Lowe’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 20.1× forward price-to-earnings (or $248.99 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at Costco, one of Charlie Munger’s all-time favorite businesses.
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