Over the past six months, Northwest Pipe has been a great trade, beating the S&P 500 by 8.1%. Its stock price has climbed to $52.93, representing a healthy 26.8% increase. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in Northwest Pipe, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Northwest Pipe Not Exciting?

We’re happy investors have made money, but we're cautious about Northwest Pipe. Here are three reasons why NWPX doesn't excite us and a stock we'd rather own.

1. Lackluster Revenue Growth

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Northwest Pipe’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 5.9% over the last two years was well below its five-year trend.

2. Low Gross Margin Reveals Weak Structural Profitability

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Northwest Pipe has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 17.6% gross margin over the last five years. That means Northwest Pipe paid its suppliers a lot of money ($82.39 for every $100 in revenue) to run its business.

3. EPS Barely Growing

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Northwest Pipe’s EPS grew at a weak 1% compounded annual growth rate over the last five years, lower than its 11.8% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

Northwest Pipe isn’t a terrible business, but it isn’t one of our picks. With its shares beating the market recently, the stock trades at 16.1× forward P/E (or $52.93 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at our favorite semiconductor picks and shovels play.

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