Nordson has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 21.9% to $232.68 per share while the index has gained 21%.
Is there a buying opportunity in Nordson, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Is Nordson Not Exciting?
We're sitting this one out for now. Here are three reasons you should be careful with NDSN and a stock we'd rather own.
1. Core Business Falling Behind as Demand Declines
Investors interested in Professional Tools and Equipment companies should track organic revenue in addition to reported revenue. This metric gives visibility into Nordson’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, Nordson’s organic revenue averaged 2.8% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Nordson might have to lean into acquisitions to grow, 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.
Nordson’s EPS grew at a weak 1.2% compounded annual growth rate over the last two years, lower than its 3.6% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
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. Unfortunately, Nordson’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Nordson’s business quality ultimately falls short of our standards. That said, the stock currently trades at 21.3× forward P/E (or $232.68 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of our top digital advertising picks.
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