Shareholders of Bruker would probably like to forget the past six months even happened. The stock dropped 38% and now trades at $36.21. This might have investors contemplating their next move.
Is there a buying opportunity in Bruker, 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 Bruker Not Exciting?
Despite the more favorable entry price, we don't have much confidence in Bruker. Here are three reasons why there are better opportunities than BRKR and a stock we'd rather own.
1. Shrinking Adjusted Operating Margin
Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.
Analyzing the trend in its profitability, Bruker’s adjusted operating margin decreased by 5.1 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 15.1%.
2. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Bruker’s margin dropped by 9.3 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Bruker’s free cash flow margin for the trailing 12 months was 5%.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Bruker’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Bruker isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 13.2× forward P/E (or $36.21 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere. We’d suggest looking at the Amazon and PayPal of Latin America.
Stocks We Would Buy Instead of Bruker
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