Over the last six months, Clean Harbors’s shares have sunk to $224.14, producing a disappointing 11% loss while the S&P 500 was flat. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Clean Harbors, 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 Clean Harbors Not Exciting?

Even with the cheaper entry price, we're cautious about Clean Harbors. Here are three reasons why there are better opportunities than CLH and a stock we'd rather own.

1. Slow Organic Growth Suggests Waning Demand In Core Business

Investors interested in Waste Management companies should track organic revenue in addition to reported revenue. This metric gives visibility into Clean Harbors’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Clean Harbors’s organic revenue averaged 2.7% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

2. EPS Took a Dip Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Sadly for Clean Harbors, its EPS declined by 2.5% annually over the last two years while its revenue grew by 5.9%. This tells us the company became less profitable on a per-share basis as it expanded.

3. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Clean Harbors’s margin dropped by 5.3 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Clean Harbors’s free cash flow margin for the trailing 12 months was 6.1%.

Final Judgment

Clean Harbors’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 28.3× forward P/E (or $224.14 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find better investment opportunities elsewhere. We’d recommend looking at one of our top software and edge computing picks.

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