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3 Industrials Stocks with Questionable Fundamentals

ⓘ This article is third-party content and does not represent the views of this site. We make no guarantees regarding its accuracy or completeness.

CTOS Cover Image

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 industry’s six-month return of 4.3% has fallen short of the S&P 500’s 7.7% rise.

Investors should tread carefully as timing cyclical companies is a challenging task, and any misstep can have you catching a falling knife. With that said, here are three industrials stocks we’re steering clear of.

Custom Truck One Source (CTOS)

Market Cap: $2.34 billion

Inspired by a family gas station, Custom Truck One Source (NYSE: CTOS) is a distributor of trucks and heavy equipment.

Why Is CTOS Not Exciting?

  1. Annual revenue growth of 4.3% over the last two years was below our standards for the industrials sector
  2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
  3. Cash-burning history makes us doubt the long-term viability of its business model

At $10.31 per share, Custom Truck One Source trades at 61.7x forward P/E. Read our free research report to see why you should think twice about including CTOS in your portfolio.

Alta (ALTG)

Market Cap: $203 million

Founded in 1984, Alta Equipment Group (NYSE: ALTG) is a provider of industrial and construction equipment and services across the Midwest and Northeast United States.

Why Do We Pass on ALTG?

  1. Annual sales declines of 2% for the past two years show its products and services struggled to connect with the market during this cycle
  2. Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 35.6% annually
  3. High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens

Alta’s stock price of $5.98 implies a valuation ratio of 5.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why ALTG doesn’t pass our bar.

Carrier Global (CARR)

Market Cap: $55.39 billion

Founded by the inventor of air conditioning, Carrier Global (NYSE: CARR) manufactures heating, ventilation, air conditioning, and refrigeration products.

Why Are We Out on CARR?

  1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
  2. Earnings per share fell by 6% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
  3. Waning returns on capital imply its previous profit engines are losing steam

Carrier Global is trading at $67.04 per share, or 23.8x forward P/E. If you’re considering CARR for your portfolio, see our FREE research report to learn more.

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