Benchmark Electronics’s 15.4% return over the past six months has outpaced the S&P 500 by 7.7%, and its stock price has climbed to $48.08 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy Benchmark Electronics, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

We’re glad investors have benefited from the price increase, but we don't have much confidence in Benchmark Electronics. Here are three reasons why you should be careful with BHE and a stock we'd rather own.

Why Do We Think Benchmark Electronics Will Underperform?

Based in Tempe, Arizona, Benchmark Electronics (NYSE: BHE) is a global provider of product design, engineering services, technology solutions, and manufacturing services.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Benchmark Electronics grew its sales at a sluggish 2.2% compounded annual growth rate. This fell short of our benchmarks.

2. Low Gross Margin Reveals Weak Structural Profitability

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

Benchmark Electronics has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 9.2% gross margin over the last five years. That means Benchmark Electronics paid its suppliers a lot of money ($90.85 for every $100 in revenue) to run its business.

3. Breakeven Free Cash Flow Limits Reinvestment Potential

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.

Benchmark Electronics broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Benchmark Electronics, we’ll be cheering from the sidelines. With its shares outperforming the market lately, the stock trades at 20.2× forward price-to-earnings (or $48.08 per share). This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there. We’d suggest looking at Google, whose cloud computing and YouTube divisions are firing on all cylinders.

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