Even if they go mostly unnoticed, industrial businesses are the backbone of our country. But their prominence also brings high exposure to the ups and downs of economic cycles. Luckily, the tide is turning in their favor as the industry’s 21.7% return over the past six months has topped 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. On that note, here are three industrials stocks that may face trouble.
Lindsay (LNN)
Market Cap: $1.51 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 Do We Think Twice About LNN?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Forecasted revenue decline of 2.6% for the upcoming 12 months implies demand will fall even further
- Earnings per share lagged its peers over the last two years as they only grew by 4% annually
Lindsay’s stock price of $138.93 implies a valuation ratio of 21.7x forward P/E. Read our free research report to see why you should think twice about including LNN in your portfolio.
Snap-on (SNA)
Market Cap: $17.59 billion
Founded in 1920, Snap-on (NYSE: SNA) is a global provider of tools, equipment, and diagnostics for various industries such as vehicle repair, aerospace, and the military.
Why Do We Avoid SNA?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Free cash flow margin shrank by 4.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $337.24 per share, Snap-on trades at 17.6x forward P/E. To fully understand why you should be careful with SNA, check out our full research report (it’s free).
Fortune Brands (FBIN)
Market Cap: $6.69 billion
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE: FBIN) makes plumbing, security, and outdoor living products.
Why Is FBIN Risky?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings per share fell by 9.5% annually over the last two years while its revenue was flat, showing each sale was less profitable
- 6.4 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
Fortune Brands is trading at $55.21 per share, or 14.1x forward P/E. Dive into our free research report to see why there are better opportunities than FBIN.
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