Over the last six months, Array’s shares have sunk to $7.65, producing a disappointing 12.8% loss - a stark contrast to the S&P 500’s 5.1% gain. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Array, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Array Will Underperform?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons there are better opportunities than ARRY and a stock we'd rather own.
1. Revenue Tumbling Downwards
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Array’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 9.7% over the last two years.
2. Breakeven Free Cash Flow Limits Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Array broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.
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 is what often surprises the market and moves the stock price. Unfortunately, Array’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Array falls short of our quality standards. Following the recent decline, the stock trades at 10.7× forward P/E (or $7.65 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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