Teledyne’s 14% return over the past six months has outpaced the S&P 500 by 9.5%, and its stock price has climbed to $540.06 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Teledyne, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is Teledyne Not Exciting?

We’re glad investors have benefited from the price increase, but we don't have much confidence in Teledyne. Here are three reasons why TDY doesn't excite us and a stock we'd rather own.

1. Core Business Falling Behind as Demand Plateaus

Investors interested in Inspection Instruments companies should track organic revenue in addition to reported revenue. This metric gives visibility into Teledyne’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, Teledyne failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Teledyne might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. Recent EPS Growth Below Our Standards

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Teledyne’s EPS grew at an unimpressive 4.5% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 2.2% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Teledyne historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.7%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

Final Judgment

Teledyne isn’t a terrible business, but it doesn’t pass our quality test. With its shares outperforming the market lately, the stock trades at 24.3× forward P/E (or $540.06 per share). This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at a top digital advertising platform riding the creator economy.

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