The past six months have been a windfall for Tutor Perini’s shareholders. The company’s stock price has jumped 70.5%, hitting $41.89 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Tutor Perini, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Tutor Perini Not Exciting?
We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons why TPC doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Tutor Perini struggled to consistently increase demand as its $4.52 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and is a sign of lacking business quality. 
2. Low Gross Margin Reveals Weak Structural Profitability
All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.
Tutor Perini has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 6.1% gross margin over the last five years. That means Tutor Perini paid its suppliers a lot of money ($93.88 for every $100 in revenue) to run its business. 
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
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. Over the last few years, Tutor Perini’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Tutor Perini isn’t a terrible business, but it doesn’t pass our quality test. Following the recent surge, the stock trades at 20.1× forward P/E (or $41.89 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. Let us point you toward a dominant Aerospace business that has perfected its M&A strategy.
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