When you make over 50,000 products, it’s a challenge keeping up with those products and making investments in new ones. This is the challenge 3M Co (NYSE:MMM) faces as it manages five huge businesses in a global market.
In the fourth quarter, 3M Co (NYSE:MMM) gave investors a little hope that growth was picking up, with 4.3% organic growth. But that hope faded a little yesterday, when first quarter organic growth came in at just 2.1%, and overall growth was just 2%. Currency translation was a drag on results, which it will be all year, but the fundamental problem is a lack of growth.
Growing problems for 3M stock
First quarter net income barely budged higher to $1.13 billion, or $1.61 per share and, with an operating margin of 21.6%, there’s little margin upside given the competitive business environment. That means that profits will be stuck in a rut without growth.
Without growth, 3M Co (NYSE:MMM) becomes a value/dividend stock, and it’s not priced right to be that. The company’s P/E ratio is 16.5, and its dividend is 2.4%, not even close to the most attractive companies on the market. Microsoft Corporation (NASDAQ:MSFT), Intel Corporation (NASDAQ:INTC), and Apple Inc. (NASDAQ:AAPL) are all giant companies with better values right now.
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These stocks also have significantly more upside potential than 3M Co (NYSE:MMM). Microsoft Corporation (NASDAQ:MSFT) grew 8% last quarter, Apple Inc. (NASDAQ:AAPL) was up 11% and, while Intel’s revenue declined in the first quarter, it expects growth this year. If 3M is growing in the low single digits, its stock will be stuck in a rut for a while.
More growth please
The challenge for 3M Co (NYSE:MMM)’s stock going forward is that investors simply can’t get behind a growth strategy that has fits and starts. If sales are going to grow in the high single digits annually, the stock is a great value; but if it barely grows it, the entire investment thesis falls apart. Inge Thulin hasn’t been on the job long, but he has to pick up growth, or 3M Co (NYSE:MMM)’s stock is in trouble.
The article 3M Stock Has Growing Problems originally appeared on Fool.com and is written by Travis Hoium.
Fool contributor Travis Hoium owns shares of Apple, Microsoft, and Intel. The Motley Fool recommends 3M, Apple, and Intel. The Motley Fool owns shares of Apple, Intel, and Microsoft.
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