Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Unfortunately, this role also comes with a demand profile tethered to the ebbs and flows of the broader economy, and investors seem to be forecasting a downturn - over the past six months, the industry has pulled back by 6.6%. This performance was worse than the S&P 500’s 1% loss.
Investors should tread carefully as timing cyclical companies is a challenging task, and any misstep can have you catching a falling knife. Taking that into account, here are three industrials stocks best left ignored.
Gorman-Rupp (GRC)
Market Cap: $1.03 billion
Powering fluid dynamics since 1934, Gorman-Rupp (NYSE:GRC) has evolved from its Ohio origins into a global manufacturer and seller of pumps and pump systems.
Why Are We Cautious About GRC?
- Sales trends were unexciting over the last two years as its 7.1% annual growth was below the typical industrials company
- Estimated sales growth of 3.8% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin dropped by 4.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Gorman-Rupp’s stock price of $39.03 implies a valuation ratio of 18.2x forward P/E. Dive into our free research report to see why there are better opportunities than GRC.
Ameresco (AMRC)
Market Cap: $766.4 million
Having played a role in upgrading the energy solutions of Alcatraz Island, Ameresco (NYSE:AMRC) provides energy and renewable energy solutions for various sectors.
Why Should You Dump AMRC?
- Sales trends were unexciting over the last two years as its 6.1% annual growth was below the typical industrials company
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $14.57 per share, Ameresco trades at 13.9x forward P/E. Check out our free in-depth research report to learn more about why AMRC doesn’t pass our bar.
Champion Homes (SKY)
Market Cap: $5.32 billion
Founded in 1951, Champion Homes (NYSE:SKY) is a manufacturer of modular homes and buildings in North America.
Why Is SKY Not Exciting?
- Flat unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Earnings per share decreased by more than its revenue over the last two years, partly because it diluted shareholders
- Waning returns on capital imply its previous profit engines are losing steam
Champion Homes is trading at $92.82 per share, or 24.8x forward P/E. Read our free research report to see why you should think twice about including SKY in your portfolio.
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