Orion has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 14% to $7.40 per share while the index has gained 10.5%.
Is now the time to buy Orion, 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 Orion Will Underperform?
We don't have much confidence in Orion. Here are three reasons there are better opportunities than ORN and a stock we'd rather own.
1. Backlog Declines as Orders Drop
We can better understand Construction and Maintenance Services companies by analyzing their backlog. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Orion’s future revenue streams.
Orion’s backlog came in at $745.7 million in the latest quarter, and it averaged 1.7% year-on-year declines over the last two years. This performance was underwhelming and shows the company is not winning new orders. It also suggests there may be increasing competition or market saturation. 
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.
Orion has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 9.3% gross margin over the last five years. That means Orion paid its suppliers a lot of money ($90.65 for every $100 in revenue) to run its business. 
3. Cash Burn Ignites Concerns
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.
Orion’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 1%, meaning it lit $1.02 of cash on fire for every $100 in revenue.
Final Judgment
We see the value of companies helping their customers, but in the case of Orion, we’re out. That said, the stock currently trades at 31.4× forward P/E (or $7.40 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better stocks to buy right now. Let us point you toward our favorite semiconductor picks and shovels play.
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