Darling Ingredients' Rally Raises Eyebrows: Analysts Flag Concerns, Suggest Alternative Play
Shares of Darling Ingredients (DAR) have dramatically outpaced the market, climbing 39% to $45.81 in the past six months—a performance that has left many investors questioning whether the rally has legs. While strong quarterly results fueled the run, a deeper look reveals underlying challenges that could temper optimism.
"The recent performance is impressive on the surface, but it masks some persistent structural issues," said a market analyst familiar with the company. "When you peel back the layers, the fundamentals tell a more cautious story."
Over the last three years, Darling's revenue has contracted at an annualized rate of 1.3%, indicating a struggle to generate consistent demand. This trend is particularly concerning for a business in the consumer staples sector, where stability is often expected.
Further scrutiny reveals pressure on profitability. The company's gross margin has averaged 23.5% over two years, a figure that analysts consider thin for the industry. This leaves limited capital for reinvestment into new products or innovation, potentially hampering future growth.
The most glaring red flag, however, is the precipitous drop in earnings per share (EPS), which fell 42.7% annually over the same three-year period. This decline, steeper than the drop in revenue, suggests the company's cost structure is too rigid to adapt efficiently to market softness.
With the stock now trading at a forward P/E of 20.9x, some argue the recent run-up may have already priced in near-term optimism. "The valuation demands near-perfect execution, but the fundamentals show cracks," the analyst added. "In this market, capital is better deployed in sectors with clearer visibility and stronger unit economics, such as high-quality software or edge computing."
Market Voices:
"I've held DAR for years, and this rally feels like a sigh of relief more than a new dawn. The core business is still cyclical and tough. I'm cautiously holding but not adding." – Michael R., Portfolio Manager
"This is a classic 'dead cat bounce' propped up by a single quarter. The long-term charts on sales and EPS are a disaster. Investors chasing this are ignoring a three-year trend of decay." – Sarah Chen, Independent Analyst (sharper tone)
"The renewable fuels segment holds promise, and the market might be pricing that future in now. It's a volatile stock, but for those with a high risk tolerance, there could be a transformative story here if execution improves." – David Lee, Sustainability Fund Analyst
For investors seeking growth, diversifying beyond a handful of positions remains critical. High-conviction lists should be built on robust fundamentals, not short-term momentum.