Hillman has been treading water for the past six months, recording a small return of 1.4% while holding steady at $10.03. The stock also fell short of the S&P 500’s 6.6% gain during that period.

Is now the time to buy Hillman, 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.

We're swiping left on Hillman for now. Here are three reasons why we avoid HLMN and a stock we'd rather own.

Why Is Hillman Not Exciting?

Established when Max Hillman purchased a franchise operation, Hillman (NASDAQ: HLMN) designs, manufactures, and sells industrial equipment and systems for various sectors.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Hillman grew its sales at a sluggish 3.9% compounded annual growth rate. This fell short of our benchmark for the industrials sector.

2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential

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.

Hillman has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.2%, lousy for an industrials business.

3. Previous Growth Initiatives Haven’t Paid Off Yet

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Hillman historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.1%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

Final Judgment

Hillman isn’t a terrible business, but it isn’t one of our picks. With its shares trailing the market in recent months, the stock trades at 18.4× forward price-to-earnings (or $10.03 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d suggest looking at FTAI Aviation, an aerospace company benefiting from Boeing and Airbus’s struggles.

Stocks We Would Buy Instead of Hillman

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