Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the market seems to be baking in a prolonged downturn as the industry has shed 6% over the past six months. This drawdown was disappointing since the S&P 500 stood firm.
Some companies can grow regardless of the economic backdrop, but the odds aren’t great for the ones we’re analyzing today. On that note, here are three industrials stocks we’re passing on.
Carlisle (CSL)
Market Cap: $14.65 billion
Originally founded as Carlisle Tire and Rubber Company, Carlisle Companies (NYSE:CSL) is a multi-industry product manufacturer focusing on construction materials and weatherproofing technologies.
Why Are We Cautious About CSL?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Estimated sales growth of 4.6% for the next 12 months is soft and implies weaker demand
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 5.3% annually
Carlisle’s stock price of $329.44 implies a valuation ratio of 14.5x forward price-to-earnings. If you’re considering CSL for your portfolio, see our FREE research report to learn more.
Desktop Metal (DM)
Market Cap: $64.02 million
Originating from a research lab at MIT, Desktop Metal (NYSE:DM) offers 3D printers, production materials, and software to many industries.
Why Are We Hesitant About DM?
- Annual sales declines of 2.4% for the past two years show its products and services struggled to connect with the market during this cycle
- Negative free cash flow raises questions about the return timeline for its investments
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Desktop Metal is trading at $1.92 per share, or 0.3x forward price-to-sales. Read our free research report to see why you should think twice about including DM in your portfolio.
BrightView (BV)
Market Cap: $1.25 billion
An official field consultant for Major League Baseball, BrightView (NYSE:BV) offers landscaping design, development, and maintenance.
Why Are We Out on BV?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.8% annually over the last two years
- Earnings per share have dipped by 6.5% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $12.90 per share, BrightView trades at 14.8x forward price-to-earnings. To fully understand why you should be careful with BV, check out our full research report (it’s free).
Stocks We Like More
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