Over the past six months, Kirby’s shares (currently trading at $110.74) have posted a disappointing 12.5% loss while the S&P 500 was down 2.5%. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Kirby, 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 Kirby Not Exciting?
Despite the more favorable entry price, we don't have much confidence in Kirby. Here are three reasons why you should be careful with KEX and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Kirby’s 3.4% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector. 
2. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Kirby’s margin dropped by 10.2 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. Kirby’s free cash flow margin for the trailing 12 months was 10.2%.
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).
Kirby historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.9%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.
Final Judgment
Kirby isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 16.3× forward P/E (or $110.74 per share). While this valuation is fair, 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 a dominant Aerospace business that has perfected its M&A strategy.
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