Lincoln Electric’s 12.6% return over the past six months has outpaced the S&P 500 by 8.2%, and its stock price has climbed to $218.82 per share. This run-up might have investors contemplating their next move.

Is there a buying opportunity in Lincoln Electric, 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 Lincoln Electric Not Exciting?

Despite the momentum, we're cautious about Lincoln Electric. Here are three reasons why there are better opportunities than LECO and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

We can better understand Professional Tools and Equipment companies by analyzing their organic revenue. This metric gives visibility into Lincoln Electric’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, Lincoln Electric’s organic revenue averaged 2.5% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Lincoln Electric might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Lincoln Electric’s revenue to rise by 2.1%, close to its 6.5% annualized growth for the past five years. This projection is underwhelming and indicates its newer products and services will not accelerate its top-line performance yet.

3. Recent EPS Growth Below Our Standards

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.

Lincoln Electric’s EPS grew at an unimpressive 5.4% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 2% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

Final Judgment

Lincoln Electric isn’t a terrible business, but it doesn’t pass our bar. With its shares beating the market recently, the stock trades at 23.2× forward P/E (or $218.82 per share). At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere. We’d suggest looking at one of our top software and edge computing picks.

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