Since March 2020, the S&P 500 has delivered a total return of 113%. But one standout stock has nearly doubled the market - over the past five years, Snap-on has surged 201% to $327.91 per share. Its momentum hasn’t stopped as it’s also gained 13.2% in the last six months, beating the S&P by 17.3%.
Is now the time to buy Snap-on, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons why SNA doesn't excite us and a stock we'd rather own.
Why Is Snap-on Not Exciting?
Founded in 1920, Snap-on (NYSE: SNA) is a global provider of tools, equipment, and diagnostics for various industries such as vehicle repair, aerospace, and the military.
1. Core Business Falling Behind as Demand Declines
In addition to reported revenue, organic revenue is a useful data point for analyzing Professional Tools and Equipment companies. This metric gives visibility into Snap-on’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Snap-on’s organic revenue averaged 1.7% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Snap-on might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
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 Snap-on’s revenue to rise by 2.7%, close to its 2.7% annualized growth for the past two years. This projection doesn't excite us and suggests its newer products and services will not accelerate its top-line performance yet.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Snap-on’s margin dropped by 4.2 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. Snap-on’s free cash flow margin for the trailing 12 months was 19.7%.
Final Judgment
Snap-on’s business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at 16.2× forward price-to-earnings (or $327.91 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 fairly confident there are better stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.
Stocks We Would Buy Instead of Snap-on
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
