Over the last six months, HNI shares have sunk to $46.61, producing a disappointing 16.9% loss - worse than the S&P 500’s 2.4% drop. This may have investors wondering how to approach the situation.
Is there a buying opportunity in HNI, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is HNI Not Exciting?
Even with the cheaper entry price, we don't have much confidence in HNI. Here are three reasons why there are better opportunities than HNI 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. Unfortunately, HNI’s 2.7% annualized revenue growth over the last five years was sluggish. This was below our standards. 
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
HNI’s weak 2.3% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, HNI’s margin dropped by 3.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. HNI’s free cash flow margin for the trailing 12 months was 7.4%.
Final Judgment
HNI isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 13.2× forward P/E (or $46.61 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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