Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the market seems confused about where we could go next. This uncertainty has led to a flat return for the industry over the past six months while the S&P 500 was up 5.2%.
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.
LSI (LYTS)
Market Cap: $503.2 million
Enhancing commercial environments, LSI (NASDAQ: LYTS) provides lighting and display solutions for businesses and retailers.
Why Does LYTS Fall Short?
- 4.5% annual revenue growth over the last two years was slower than its industrials peers
- Annual earnings per share growth of 2.7% underperformed its revenue over the last two years, partly because it diluted shareholders
- Free cash flow margin dropped by 5.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
LSI is trading at $17.35 per share, or 14.5x forward P/E. To fully understand why you should be careful with LYTS, check out our full research report (it’s free).
Lindsay (LNN)
Market Cap: $1.47 billion
A pioneer in the field of center pivot and lateral move irrigation, Lindsay (NYSE: LNN) provides a variety of proprietary water management and road infrastructure products and services.
Why Is LNN Not Exciting?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Projected sales decline of 2.6% over the next 12 months indicates demand will continue deteriorating
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 4% annually
Lindsay’s stock price of $135.66 implies a valuation ratio of 21.2x forward P/E. Check out our free in-depth research report to learn more about why LNN doesn’t pass our bar.
Pangaea (PANL)
Market Cap: $328.8 million
Established in 1996, Pangaea Logistics (NASDAQ: PANL) specializes in global logistics and transportation services, focusing on the shipment of dry bulk cargoes.
Why Do We Steer Clear of PANL?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.5% annually over the last two years
- Earnings per share have contracted by 33.9% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
- Free cash flow margin shrank by 9.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $5.26 per share, Pangaea trades at 9.2x forward P/E. Dive into our free research report to see why there are better opportunities than PANL.
Stocks We Like More
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