ESAB currently trades at $123.22 per share and has shown little upside over the past six months, posting a small loss of 3.9%.
Is now the time to buy ESAB, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is ESAB Not Exciting?
We're swiping left on ESAB for now. Here are three reasons why ESAB doesn't excite us and a stock we'd rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
Investors interested in Professional Tools and Equipment companies should track organic revenue in addition to reported revenue. This metric gives visibility into ESAB’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, ESAB’s organic revenue averaged 2.8% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
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 ESAB’s revenue to rise by 2.9%, close to its 1.9% annualized growth for the past two years. This projection is underwhelming and suggests its newer products and services will not catalyze better top-line performance yet.
3. EPS Barely Growing
We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
ESAB’s EPS grew at an unimpressive 4.4% compounded annual growth rate over the last three years. On the bright side, this performance was better than its 2.9% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
ESAB isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 22.9× forward P/E (or $123.22 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.
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