Whether you see them or not, industrials businesses play a crucial part in our daily activities. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 20% gain over the past six months, beating the S&P 500 by 6.1 percentage points.
Regardless of these results, investors should tread carefully. The diversity of companies in this space means that not all are created equal or well-positioned for the inescapable downturn. Keeping that in mind, here is one industrials stock boasting a durable advantage and two best left ignored.
Two Industrials Stocks to Sell:
Graham Corporation (GHM)
Market Cap: $709.1 million
Founded when its founder patented a unique design for a vacuum system used in the sugar refining process, Graham (NYSE: GHM) provides vacuum and heat transfer equipment for the energy, petrochemical, refining, and chemical sectors.
Why Are We Hesitant About GHM?
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
- ROIC of 3.1% reflects management’s challenges in identifying attractive investment opportunities
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Graham Corporation’s stock price of $64.12 implies a valuation ratio of 43.8x forward P/E. If you’re considering GHM for your portfolio, see our FREE research report to learn more.
SolarEdge (SEDG)
Market Cap: $1.91 billion
Established in 2006, SolarEdge (NASDAQ: SEDG) creates advanced systems to improve the efficiency of solar panels.
Why Do We Steer Clear of SEDG?
- Number of megawatts shipped has disappointed over the past two years, indicating weak demand for its offerings
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly
At $32.17 per share, SolarEdge trades at 1.4x forward price-to-sales. Check out our free in-depth research report to learn more about why SEDG doesn’t pass our bar.
One Industrials Stock to Watch:
Limbach (LMB)
Market Cap: $890.7 million
Established in 1901, Limbach (NASDAQ: LMB) provides integrated building systems solutions, including mechanical, electrical, and plumbing services.
Why Could LMB Be a Winner?
- Operating margin increased by 6 percentage points over the last five years as it refined its cost structure
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 42.5% over the last two years outstripped its revenue performance
- Free cash flow margin grew by 8 percentage points over the last five years, giving the company more chips to play with
Limbach is trading at $76.64 per share, or 18.1x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
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