Although the S&P 500 is down 9.7% over the past six months, Cummins’s stock price has fallen further to $281.41, losing shareholders 16.3% of their capital. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Cummins, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free .

Even with the cheaper entry price, we're cautious about Cummins. Here are three reasons why there are better opportunities than CMI and a stock we'd rather own.

Why Is Cummins Not Exciting?

With more than half of the heavy-duty truck market using its engines at one point, Cummins (NYSE:CMI) offers engines and power systems.

1. Projected Revenue Growth Shows Limited Upside

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 Cummins’s revenue to stall, a deceleration versus its 10.2% annualized growth for the past two years. This projection is underwhelming and implies its products and services will see some demand headwinds.

2. 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, Cummins’s margin dropped by 10.3 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business. Cummins’s free cash flow margin for the trailing 12 months was breakeven.

3. 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 like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Cummins’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Cummins isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 12.2× forward price-to-earnings (or $281.41 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. We’d suggest looking at the most dominant software business in the world .