Although the S&P 500 is down 1.9% over the past six months, Matrix Service’s stock price has fallen further to $12.19, losing shareholders 6.9% of their capital. 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 Matrix Service, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Matrix Service Not Exciting?

Despite the more favorable entry price, we're swiping left on Matrix Service for now. Here are three reasons why there are better opportunities than MTRX and a stock we'd rather own.

1. Revenue Spiraling Downwards

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Matrix Service’s demand was weak and its revenue declined by 10.7% per year. This was below our standards and signals it’s a lower quality business.

2. Low Gross Margin Reveals Weak Structural Profitability

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Matrix Service has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 4.2% gross margin over the last five years. Said differently, Matrix Service had to pay a chunky $95.79 to its suppliers for every $100 in revenue.

3. EPS Trending Down

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.

Sadly for Matrix Service, its EPS declined by 23.9% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

Final Judgment

Matrix Service isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 16.2× forward P/E (or $12.19 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at the most entrenched endpoint security platform on the market.

Stocks We Would Buy Instead of Matrix Service

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