Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the industry’s six-month return of 4.5% has fallen short of the S&P 500’s 14% rise.
A cautious approach is imperative when dabbling in these companies as the losers can be left for dead when the cycle naturally turns and the winners consolidate. Keeping that in mind, here are three industrials stocks best left ignored.
Griffon (GFF)
Market Cap: $4.21 billion
Initially in the defense industry, Griffon (NYSE:GFF) is a now diversified company specializing in home improvement, professional equipment, and building products.
Why Do We Think Twice About GFF?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.4% annually over the last five years
- Forecasted revenue decline of 6.7% for the upcoming 12 months implies demand will fall even further
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 7% annually
At $93.04 per share, Griffon trades at 15.6x forward P/E. If you’re considering GFF for your portfolio, see our FREE research report to learn more.
Commercial Vehicle Group (CVGI)
Market Cap: $112.9 million
Formed from a partnership between two distinct companies, CVG (NASDAQ:CVGI) offers various components used in vehicles and systems used in warehouses.
Why Are We Bearish on CVGI?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.8% annually over the last five years
- Performance over the past five years was negatively impacted by new share issuances as its earnings per share dropped by 22.2% annually, worse than its revenue
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Commercial Vehicle Group is trading at $2.97 per share, or 25.5x forward P/E. Dive into our free research report to see why there are better opportunities than CVGI.
SolarEdge (SEDG)
Market Cap: $2.21 billion
Established in 2006, SolarEdge (NASDAQ: SEDG) creates advanced systems to improve the efficiency of solar panels.
Why Do We Think SEDG Will Underperform?
- Sales tumbled by 3.4% annually over the last five years, showing market trends are working against it during this cycle
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
SolarEdge’s stock price of $35.95 implies a valuation ratio of 127.4x forward P/E. Check out our free in-depth research report to learn more about why SEDG doesn’t pass our bar.
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