Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the market seems convinced that demand will slow. Due to this bearish outlook, the industry has tumbled by 1.8% over the past six months. This drawdown was discouraging since the S&P 500 returned 1.1%.
Some companies can grow regardless of the economic backdrop, but the odds aren’t great for the ones we’re analyzing today. Taking that into account, here are three industrials stocks we’re swiping left on.
NuScale (SMR)
Market Cap: $1.88 billion
Founded by a team of nuclear scientists, NuScale (NYSE: SMR) specializes in small modular reactor technology, providing scalable nuclear power solutions.
Why Does SMR Fall Short?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 13.6% annually over the last two years
- Cash-burning history makes us doubt the long-term viability of its business model
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
NuScale’s stock price of $14.69 implies a valuation ratio of 65.6x forward price-to-sales. If you’re considering SMR for your portfolio, see our FREE research report to learn more.
Lucid (LCID)
Market Cap: $6.31 billion
Founded by a former Tesla Vice President, Lucid Group (NASDAQ: LCID) designs, manufactures, and sells luxury electric vehicles with long-range capabilities.
Why Are We Wary of LCID?
- Issuance of new shares over the last two years caused its earnings per share to fall by 9.6% annually while its revenue grew
- Negative free cash flow raises questions about the return timeline for its investments
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Lucid is trading at $2.11 per share, or 3.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than LCID.
Sunrun (RUN)
Market Cap: $1.58 billion
Helping homeowners use solar energy to power their homes, Sunrun (NASDAQ: RUN) provides residential solar electricity, specializing in panel installation and leasing services.
Why Do We Think Twice About RUN?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.3% annually over the last two years
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $7.03 per share, Sunrun trades at 9.4x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including RUN in your portfolio.
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