Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Unfortunately, this role also comes with a demand profile tethered to the ebbs and flows of the broader economy, and investors seem to be forecasting a downturn - over the past six months, the industry has pulled back by 6%. This performance was disheartening since the S&P 500 held steady.
A cautious approach is imperative when dabbling in these companies as the losers can be left for dead when the cycle naturally turns and the winners consolidate. With that said, here are three industrials stocks that may face trouble.
FTAI Infrastructure (FIP)
Market Cap: $564 million
Spun off from FTAI Aviation in 2021, FTAI Infrastructure (NASDAQ: FIP) invests in and operates infrastructure and related assets across the transportation and energy sectors.
Why Is FIP Not Exciting?
- Poor expense management has led to operating losses
- Revenue growth over the past three years was nullified by the company’s new share issuances as its earnings per share fell by 45.7% annually
- Cash burn makes us question whether it can achieve sustainable long-term growth
FTAI Infrastructure’s stock price of $5.20 implies a valuation ratio of 2.5x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including FIP in your portfolio.
Carrier Global (CARR)
Market Cap: $56.53 billion
Founded by the inventor of air conditioning, Carrier Global (NYSE: CARR) manufactures heating, ventilation, air conditioning, and refrigeration products.
Why Do We Avoid CARR?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- 7.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $65.36 per share, Carrier Global trades at 21.9x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than CARR.
Ameresco (AMRC)
Market Cap: $554.8 million
Having played a role in upgrading the energy solutions of Alcatraz Island, Ameresco (NYSE: AMRC) provides energy and renewable energy solutions for various sectors.
Why Does AMRC Give Us Pause?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.5% 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
Ameresco is trading at $10.70 per share, or 6.8x forward price-to-earnings. Check out our free in-depth research report to learn more about why AMRC doesn’t pass our bar.
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