Great Lakes Dredge & Dock trades at $11.47 per share and has stayed right on track with the overall market, losing 5.1% over the last six months while the S&P 500 is down 1.6%. This might have investors contemplating their next move.

Is now the time to buy Great Lakes Dredge & Dock, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Great Lakes Dredge & Dock Not Exciting?

Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons why we avoid GLDD and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Great Lakes Dredge & Dock grew its sales at a sluggish 1.8% compounded annual growth rate. This was below our standards.

2. Cash Burn Ignites Concerns

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

While Great Lakes Dredge & Dock posted positive free cash flow this quarter, the broader story hasn’t been so clean. Great Lakes Dredge & Dock’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 9.1%, meaning it lit $9.12 of cash on fire for every $100 in revenue.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Great Lakes Dredge & Dock’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

Great Lakes Dredge & Dock’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 16.5× forward P/E (or $11.47 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at a top digital advertising platform riding the creator economy.

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