Emerson Electric trades at $114.65 per share and has stayed on track with the overall market, gaining 5.3% over the last six months. At the same time, the S&P 500 was flat.
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We're swiping left on Emerson Electric for now. Here are three reasons why EMR doesn't excite us and a stock we'd rather own.
Why Is Emerson Electric Not Exciting?
Founded in 1890, Emerson Electric (NYSE:EMR) is a multinational technology and engineering company providing solutions in the industrial, commercial, and residential markets.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Emerson Electric struggled to consistently increase demand as its $17.55 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and is a sign of lacking business quality. 
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 Emerson Electric’s revenue to rise by 4.7%, a deceleration versus its 11.9% annualized growth for the past two years. This projection doesn't excite us and implies its products and services will face some demand challenges.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Emerson Electric’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Emerson Electric isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 19.1× forward price-to-earnings (or $114.65 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of our top software and edge computing picks.
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