Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 20.8% gain over the past six months, beating the S&P 500 by 9.3 percentage points.
Regardless of these results, investors should tread carefully. The diversity of companies in this space means that not all are created equal or well-positioned for the inescapable downturn. Taking that into account, here are three industrials stocks we’re passing on.
Saia (SAIA)
Market Cap: $7.73 billion
Pivoting its business model after realizing there was more success in delivering produce than selling it, Saia (NASDAQ: SAIA) is a provider of freight transportation solutions.
Why Is SAIA Not Exciting?
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 7.3% annually while its revenue grew
- 9.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $289.90 per share, Saia trades at 28x forward P/E. Read our free research report to see why you should think twice about including SAIA in your portfolio.
Wabash (WNC)
Market Cap: $451.1 million
With its first trailer reportedly built on two sawhorses, Wabash (NYSE: WNC) offers semi trailers, liquid transportation containers, truck bodies, and equipment for moving goods.
Why Is WNC Risky?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 36.2% decline in its backlog
- Sales were less profitable over the last five years as its earnings per share fell by 22.3% annually, worse than its revenue declines
- 8× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Wabash is trading at $11.02 per share, or 14.7x forward P/E. Dive into our free research report to see why there are better opportunities than WNC.
Tri Pointe Homes (TPH)
Market Cap: $3.09 billion
Established in 2009 in California, Tri Pointe Homes (NYSE: TPH) is a United States homebuilder recognized for its innovative and sustainable approach to creating premium, life-enhancing homes.
Why Do We Steer Clear of TPH?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 7.6% declines over the past two years
- Forecasted revenue decline of 18.5% for the upcoming 12 months implies demand will fall even further
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 8.1% annually, worse than its revenue
Tri Pointe Homes’s stock price of $35.66 implies a valuation ratio of 12.5x forward P/E. Check out our free in-depth research report to learn more about why TPH doesn’t pass our bar.
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