Over the past six months, Hyster-Yale Materials Handling’s shares (currently trading at $36.14) have posted a disappointing 5.2% loss, well below the S&P 500’s 23.2% gain. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Hyster-Yale Materials Handling, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Do We Think Hyster-Yale Materials Handling Will Underperform?
Even with the cheaper entry price, we're swiping left on Hyster-Yale Materials Handling for now. Here are three reasons we avoid HY and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Hyster-Yale Materials Handling’s sales grew at a tepid 5.4% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector.
2. Revenue Projections Show Stormy Skies Ahead
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 Hyster-Yale Materials Handling’s revenue to drop by 3.5%, a decrease from its 5.4% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
3. EPS Growth Has Stalled
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.
Hyster-Yale Materials Handling’s flat EPS over the last five years was below its 5.4% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Hyster-Yale Materials Handling, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 4× forward EV-to-EBITDA (or $36.14 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.
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