Even though Nordson (currently trading at $311.34 per share) has gained 5.7% over the last six months, it has lagged the S&P 500’s 13.5% return during that period. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Nordson, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Nordson Not Exciting?
We’re cautious about Nordson. Here are three reasons why there are better opportunities than NDSN, plus one stock we’d rather own.
1. Core Business Falling Behind as Demand Plateaus
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 failed to grow its organic revenue. 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 accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Nordson’s revenue to rise by 5.1%, close to its 5.6% annualized growth for the past five years. This projection is underwhelming and suggests its newer products and services will not accelerate its top-line performance yet.
3. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
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 isn’t a terrible business, but it doesn’t pass our quality test. With its shares trailing the market in recent months, the stock trades at 25.8× forward P/E (or $311.34 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We’re fairly confident there are better stocks to buy right now. Let us point you toward one of our top software and edge computing picks.
Stocks We Would Buy Instead of Nordson
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