Whether you see them or not, industrials businesses play a crucial part in our daily activities. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 28.1% gain over the past six months, beating the S&P 500 by 9.5 percentage points.
Regardless of these results, investors should tread carefully. The diversity of companies in this space means that not all are created equal or well-positioned for the inescapable downturn. With that said, here are three industrials stocks we’re passing on.
Janus (JBI)
Market Cap: $1.37 billion
Standing out with its digital keyless entry into self-storage room technology, Janus (NYSE: JBI) is a provider of easily accessible self-storage solutions.
Why Does JBI Give Us Pause?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Sales are projected to be flat over the next 12 months and imply weak demand
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
Janus is trading at $9.86 per share, or 7.1x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why JBI doesn’t pass our bar.
Rush Enterprises (RUSHA)
Market Cap: $4.25 billion
Headquartered in Texas, Rush Enterprises (NASDAQ: RUSH.A) provides truck-related services and solutions, including sales, leasing, parts, and maintenance for commercial vehicles.
Why Do We Pass on RUSHA?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Estimated sales decline of 6.5% for the next 12 months implies an even more challenging demand environment
- Earnings per share have dipped by 10.6% annually over the past two years, which is concerning because stock prices follow EPS over the long term
Rush Enterprises’s stock price of $53.90 implies a valuation ratio of 13.7x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including RUSHA in your portfolio.
Avery Dennison (AVY)
Market Cap: $12.51 billion
Founded as Kum Kleen Products, Avery Dennison (NYSE: AVY) is a manufacturer of adhesive materials, display graphics, and packaging products, serving various industries.
Why Does AVY Fall Short?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- 3.4 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Eroding returns on capital suggest its historical profit centers are aging
At $160.42 per share, Avery Dennison trades at 15.6x forward P/E. If you’re considering AVY for your portfolio, see our FREE research report to learn more.
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