Baker Hughes currently trades at $61.32 and has been a dream stock for shareholders. It’s returned 182% since April 2021, more than tripling the S&P 500’s 57.8% gain. The company has also beaten the index over the past six months as its stock price is up 26.8% thanks to its solid quarterly results.
Is there a buying opportunity in Baker Hughes, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Baker Hughes Not Exciting?
We’re happy investors have made money, but we're swiping left on Baker Hughes for now. Here are two reasons why BKR doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Cyclical industries such as Energy can make mediocre companies look great for a time, but a long-term view reveals which businesses can actually withstand and adapt to changing conditions. Over the last five years, Baker Hughes grew its sales at a sluggish 6% compounded annual growth rate. This was below our standard for the energy upstream and integrated energy sector.
2. Low Gross Margin Reveals Weak Structural Profitability
In a single quarter or year, gross margins in the sector can swing wildly due to commodity prices, hedging, or changes in labor costs. Over a multi-year period across different points in the cycle, gross margin differences can signal whether a company is a structurally-advantaged producer (“rock” quality, takeaway, operating costs) or not.
Baker Hughes, which averaged 21.9% gross margin over the last five years, exhibiting bottom-tier unit economics in the sector. It means the company will struggle at higher commodity prices than peers with better gross margins. 
Final Judgment
Baker Hughes isn’t a terrible business, but it doesn’t pass our quality test. With its shares beating the market recently, the stock trades at 23.8× forward P/E (or $61.32 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 pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at the most entrenched endpoint security platform on the market.
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