Itron has been treading water for the past six months, recording a small loss of 1.3% while holding steady at $98.28. The stock also fell short of the S&P 500’s 11.3% gain during that period.
Is now the time to buy Itron, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Itron Not Exciting?
We don’t have much confidence in Itron. Here are three reasons we avoid ITRI, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Itron’s sales grew at a sluggish 2.1% compounded annual growth rate over the last five years. This fell short of our benchmarks.
2. Weak Operating Margin Could Cause Trouble
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Itron was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.8% was weak for an industrials business. This result is surprising given its high gross margin as a starting point.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Itron historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.9%, somewhat low compared to the best industrials companies that consistently pump out 20%+.
Final Judgment
Itron’s business quality ultimately falls short of our standards. With its shares lagging the market recently, the stock trades at 14.8× forward P/E (or $98.28 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at a dominant aerospace business that has perfected its M&A strategy.
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