Analyzing the Buy and Sell Potential of 3 Industrial Stocks

Despite several macroeconomic challenges, the industry sector seems positioned for long-term growth and profitability, propelled by a growing need for industrial machinery and services across different industries, numerous technological advancements, and favorable government investments in the nation’s infrastructure.

Considering the industry’s rosy prospects, it could be wise to invest in quality industrial stock Vertiv Holdings Co (VRT) for solid returns. But investors could hold Fastenal Company (FAST) and wait for a better entry point in this stock while avoiding struggling ChargePoint Holdings, Inc. (CHPT) seems prudent.

Before delving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industrial sector’s outlook.

Robust demand for industrial equipment and services for numerous applications across end-markets, including transportation, consumer products, packaging, electronics, medical devices and healthcare, aerospace, chemicals, agriculture, metals and mining, energy, and more, create various high-growth opportunities for companies in the industrial sector.

The global industrial machinery market is expected to reach $1.04 trillion by 2032, growing at a CAGR of 5.3% from 2023 to 2032. Industrial machinery refers to equipment, machinery, and tools used in manufacturing, processing, and producing goods across multiple industries.

The industrial machinery market has been growing steadily over the past years, propelled by the demand for automation and the modernization of production processes. Also, the market’s growth is driven by the growing adoption of advanced technologies such as the Internet of Things (IoT), Artificial Intelligence (AI), cloud, big data analysis, and robotics.

The global Industry 4.0 market is projected to reach $482 billion by 2032, growing at a CAGR of 20.7% during the forecast period (2023-2030). Advancements in technology have provided the foundation for Industry 4.0. It allows manufacturers to boost productivity and efficiency and lower costs by optimizing resource utilization, streamlining processes, and reducing waste.

Growing infrastructure spending by governments will further drive the industrial sector’s growth. President Biden signed the $1 trillion Bipartisan Infrastructure bill into law two years ago, putting nearly $550 billion of new federal funds into America’s infrastructure over the next five years, improving the nation’s transportation, broadband, and utilities.

Considering these conducive trends, let’s take a look at the fundamentals of the three Industrial - Equipment stocks, starting with number 3.

Stock to Sell:

Stock #3: ChargePoint Holdings, Inc. (CHPT)

CHPT provides electric vehicle (EV) charging networks and charging solutions internationally. It provides a portfolio of hardware, software, and services for commercial, fleet, and residential customers. The ChargePoint cloud subscription platform is designed to include options for every charging scenario from home to workplace, parking, retail, and transport fleets.

CHPT’s trailing-12-month gross profit margin of 15.63% is 48.5% lower than the 30.35% industry average. Likewise, its trailing-12-month EBITDA margin and net income margin of negative 60.54% and negative 65.83% compared to the industry averages of 13.74% and 6.05%, respectively.

On November 16, CHPT announced certain preliminary fiscal 2024 third-quarter financial results. The company forecasted revenue to be between $108 million and $113 million, compared to $150-$165 million as previously expected. The company expects a non-cash impairment charge of $42 million, resulting in a non-GAAP gross margin of negative 19% to negative 17%.

ChargePoint anticipates non-GAAP operating expenses of $80 million to 82 million. Also, as of October 31, 2023, the company’s cash, cash equivalents and restricted cash was nearly $397 million, which includes $232 million of at-the-market share offering gross proceeds, as previously announced on October 11, 2023.

“Our core markets of North America and Europe both came under pressure late in the third quarter, with revenue falling far short of expectations. Overall macroeconomic conditions, along with fleet and commercial vehicle delivery delays impacted anticipated deployments with government, auto dealership and workplace customers,” said Rick Wilmer, President and CEO of CHPT.

For the second quarter that ended July 31, 2023, CHPT’s non-GAAP gross profit decreased 81.1% year-over-year to $3.83 million. The company’s non-GAAP net loss widened by 40.7% from the prior year’s quarter to $87.01 million. Its non-GAAP EBITDA loss increased 44.3% from the year-ago value to $81.16 million.

Analysts expect CHPT’s revenue for the third quarter (ended October 2023) to decline 5.4% year-over-year to $118.58 million. The company is expected to report a loss per share of $0.22 for the same period. Also, CHPT missed the consensus revenue estimate in three of the trailing four quarters, which is disappointing.

CHPT’s stock has plunged 24.4% over the past month and 80.8% over the past six months to close the last trading session at $1.86.

CHPT’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

CHPT has an F grade for Sentiment, Quality, and Stability. It has a D for Growth, Value, and Momentum. In the Industrial - Equipment industry, it is ranked last among 91 stocks. Get all CHPT ratings here.

Stock to Hold:

Stock #2: Fastenal Company (FAST)

FAST engages in the wholesale distribution of industrial and construction supplies worldwide. The company provides fasteners and related industrial and construction supplies under the Fastenal name. It serves manufacturing and non-residential construction markets. Also, it serves farmers, railroads, mining companies, and oil exploration and refinement companies.

On September 12, FAST selected ZEVX™, a global leader in intelligent electric vehicle (EV) systems, for an operational trial to convert pickup trucks in its fleet to EVs. ZEVX adopts best-in-class EV battery system technology & commercial powertrains to reduce the environmental impact of its fleet and realize operational efficiencies.

FAST’s trailing-12-month gross profit and EBIT margins of 45.63% and 20.70% are 50.3% and 113.8% higher than the respective industry averages of 30.35% and 9.68%. Likewise, the stock’s trailing-12-month net income margin of 15.57% is 157.4% higher than the industry average of 6.05%.

In terms of forward non-GAAP P/E, FAST is trading at 29.85x, 72.4% higher than the industry average of 17.32x. Also, the stock’s forward EV/Sales and Price/Sales multiples of 4.67 and 4.64 are significantly higher than the industry averages of 1.71 and 1.32, respectively.

For the third quarter that ended September 30, 2023, FAST’s net sales increased 2.4% year-over-year to $1.85 billion. Its gross profit grew 2.6% from the year-ago value to $847.60 million. Also, the company’s operating income was $386.70 million, an increase of 2% from the previous year’s quarter.

In addition, the company’s net earnings came in at $295.50 million, or $0.52 per share, compared to $284.60 million, or $0.50 per share, respectively.

Analysts expect FAST’s revenue for the fourth quarter (ending December 2023) to increase 3.5% and 4.5% year-over-year to $1.75 billion and $0.45, respectively. However, the company failed to surpass the consensus revenue estimates in three of the trailing four quarters.

Shares of FAST have gained 9.2% over the past six months and 16.4% over the past year to close the last trading session at $59.97.

FAST’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.

FAST has an A grade for Quality. It has a C grade for Sentiment and Quality. Also, the stock has a D grade for Value. It is ranked #49 of 91 stocks in the same industry.

In addition to the POWR Ratings I’ve just highlighted, you can see FAST’s ratings for Growth and Stability here.

Stocks to Buy:

Stock #1: Vertiv Holdings Co (VRT)

VRT manufactures and services critical digital infrastructure technologies and life cycle services for data centers, communication networks, and commercial and industrial environments in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. It provides products primarily under the Vertiv, NetSure, Geist, E&I, Liebert, Powerbar, and Avocent brands.

On November 30, VRT partnered with Intel Corporation (INTC), an industry leader in creating world-changing technology, to provide a liquid cooling solution to support the revolutionary new Intel Gaudi3 AI accelerator, expected to launch in 2024.

“The Intel Gaudi3 AI accelerator provides the perfect solution for a Vertiv and Intel collaboration,” said John Niemann, SVP global thermal line of business at VRT. “Vertiv continues to expand our broad liquid cooling portfolio, resulting in our ability to support leaders of next generation AI technologies, like Intel. Vertiv helps customers accelerate the adoption of AI quickly and reliably, while also helping them to achieve sustainability goals.”

VRT’s trailing-12-month gross profit margin of 33.50% is 10.4% higher than the industry average of 30.35%. Also, the stock’s trailing-12-month EBIT margin of 11.86% is 22.5% higher than the industry average of 9.68%.

VRT’s net sales increased 17.7% year-over-year to $1.74 billion in the third quarter that ended September 30, 2023. Its adjusted operating profit grew 120.9% from the year-ago value to $296.40 million. Also, its adjusted net income rose 136.2% year-over-year to $201.20 million, and its adjusted net income per was $0.52, up 126.1% from the prior year’s quarter.

Furthermore, the company’s adjusted free cash flow came in at $221.30 million, compared to the negative $20.40 million in the previous year’s period.

VRT’s third-quarter results exceeded its expectations, driven by an intense focus on operational execution and solid market demand for its products and services. As a result, the company raised its full-year 2023 guidance for all financial metrics. For the full year, VRT’s net sales are expected to be between $6.83 billion and $6.85 billion.

In addition, the company’s adjusted operating profit is expected to be in the range of $1.02 billion-$1.03 billion. Also, VRT projects its adjusted EPS and adjusted free cash flow to be in the ranges of $1.69-$1.73 and $600 million-$650 million, respectively.

The consensus revenue estimate of $6.83 million for the fiscal year (ending December 2023) reflects a 20% year-over-year improvement. Likewise, the consensus EPS estimate of $1.73 for the ongoing year indicates a 227.3% rise year-over-year. Also, VRT topped the consensus EPS estimates in three of the trailing four quarters.

The stock has surged 116.8% over the past six months and 215.2% over the past year to close the last trading session at $43.66.

VRT’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

The stock has an A grade for Growth and Sentiment. VRT is ranked #36 of 91 stocks in the B-rated Industrial - Equipment industry.

Click here to access the other ratings of VRT for Stability, Value, Quality, and Momentum.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

FAST shares were unchanged in premarket trading Friday. Year-to-date, FAST has gained 30.02%, versus a 20.67% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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