3 Reasons to Sell WWW and 1 Stock to Buy Instead

The past six months have been a windfall for Wolverine Worldwide’s shareholders. The company’s stock price has jumped 52.6%, hitting $22.10 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy Wolverine Worldwide, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free .

We’re glad investors have benefited from the price increase, but we don't have much confidence in Wolverine Worldwide. Here are three reasons why WWW doesn't excite us and a stock we'd rather own.

Why Do We Think Wolverine Worldwide Will Underperform?

Founded in 1883, Wolverine Worldwide (NYSE:WWW) is a global footwear company with a diverse portfolio of brands including Merrell, Hush Puppies, and Saucony.

1. Revenue Spiraling Downwards

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Wolverine Worldwide struggled to consistently generate demand over the last five years as its sales dropped at a 5% annual rate. This was below our standards and signals it’s a low quality business.

2. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We typically prefer to invest in companies with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. Unfortunately, Wolverine Worldwide’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

3. High Debt Levels Increase Risk

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Wolverine Worldwide’s $825.5 million of debt exceeds the $140.2 million of cash on its balance sheet. Furthermore, its 8× net-debt-to-EBITDA ratio (based on its EBITDA of $87.95 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Wolverine Worldwide could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.