Kellanova has been treading water for the past six months, recording a small loss of 0.7% while holding steady at $80.02.
Is there a buying opportunity in Kellanova, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Kellanova Not Exciting?
We're cautious about Kellanova. Here are three reasons why there are better opportunities than K and a stock we'd rather own.
1. Demand Slipping as Sales Volumes Decline
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
Kellanova’s average quarterly sales volumes have shrunk by 2.9% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable. 
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 Kellanova’s revenue to rise by 1.8%. Although this projection indicates its newer products will spur better top-line performance, it is still below the sector average.
3. EPS Trending Down
We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Kellanova, its EPS and revenue declined by 3.5% and 2.6% annually over the last three 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, Kellanova’s low margin of safety could leave its stock price susceptible to large downswings.
Final Judgment
Kellanova isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 20.5× forward P/E (or $80.02 per share). This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there. Let us point you toward the most dominant software business in the world.
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