Whether you see them or not, industrials businesses play a crucial part in our daily activities. 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 9.9%. This performance is a noticeable divergence from the S&P 500’s 8.9% return.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. On that note, here is one industrials stock boasting a durable advantage and two we would avoid.
Two Industrials Stocks to Sell:
IDEX (IEX)
Market Cap: $17.19 billion
Founded in 1988, IDEX (NYSE: IEX) is a global manufacturer specializing in highly engineered products such as pumps, flow meters, and fluidics systems for various industries.
Why Does IEX Give Us Pause?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 3.5% annually
- Waning returns on capital imply its previous profit engines are losing steam
At $233.10 per share, IDEX trades at 25.4x forward P/E. To fully understand why you should be careful with IEX, check out our full research report (it’s free).
Plug Power (PLUG)
Market Cap: $1.96 billion
Powering forklifts for Walmart’s distribution centers, Plug Power (NASDAQ: PLUG) provides hydrogen fuel cells used to power electric motors.
Why Does PLUG Fall Short?
- Sales trends were unexciting over the last two years as its 4.3% annual growth was below the typical industrials company
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Plug Power is trading at $1.42 per share, or 2.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than PLUG.
One Industrials Stock to Watch:
Distribution Solutions (DSGR)
Market Cap: $1.62 billion
Founded in 1952, Distribution Solutions (NASDAQ: DSGR) provides supply chain solutions and distributes industrial, safety, and maintenance products to various industries.
Why Do We Like DSGR?
- Market share has increased this cycle as its 31.9% annual revenue growth over the last five years was exceptional
- Share repurchases over the last two years enabled its annual earnings per share growth of 11.4% to outpace its revenue gains
- Free cash flow margin expanded by 7.7 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
Distribution Solutions’s stock price of $35.06 implies a valuation ratio of 21.4x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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