What a time it’s been for Astec. In the past six months alone, the company’s stock price has increased by a massive 58%, reaching $49.10 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Astec, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.
Why Is Astec Not Exciting?
Despite the momentum, we're swiping left on Astec for now. Here are three reasons there are better opportunities than ASTE and a stock we'd rather own.
1. Backlog Declines as Orders Drop
We can better understand Construction Machinery companies by analyzing their backlog. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Astec’s future revenue streams.
Astec’s backlog came in at $380.8 million in the latest quarter, and it averaged 28.2% year-on-year declines over the last two years. This performance was underwhelming and shows the company is not winning new orders. It also suggests there may be increasing competition or market saturation. 
2. Low Gross Margin Reveals Weak Structural Profitability
All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.
Astec has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 23.8% gross margin over the last five years. That means Astec paid its suppliers a lot of money ($76.22 for every $100 in revenue) to run its business. 
3. Breakeven Free Cash Flow Limits Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Astec broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.
Final Judgment
Astec isn’t a terrible business, but it doesn’t pass our quality test. Following the recent surge, the stock trades at 19.1× forward P/E (or $49.10 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better investments elsewhere. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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