Knowles currently trades at $18.95 per share and has shown little upside over the past six months, posting a middling return of 3.7%. The stock also fell short of the S&P 500’s 10.2% gain during that period.
Is now the time to buy Knowles, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
We're sitting this one out for now. Here are three reasons why we avoid KN and a stock we'd rather own.
Why Do We Think Knowles Will Underperform?
Holding a swath of patents, Knowles (NYSSE:KN) offers acoustics components for various industries.
1. Revenue Spiraling Downwards
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. Knowles’s demand was weak over the last five years as its sales fell at a 2.1% annual rate. This was below our standards and signals it’s a low quality business. 
2. Revenue Projections Show Stormy Skies Ahead
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 Knowles’s revenue to drop by 23.4%, a decrease from its 2.7% annualized declines for the past two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.
3. EPS Growth Has Stalled
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Knowles’s flat EPS over the last five years was weak. On the bright side, this performance was better than its 2.1% annualized revenue declines.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Knowles, we’ll be cheering from the sidelines. With its shares trailing the market in recent months, the stock trades at 17.4× forward price-to-earnings (or $18.95 per share). This multiple tells us a lot of good news is priced in - you can find better investment opportunities elsewhere. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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