Whether you see them or not, industrials businesses play a crucial part in our daily activities. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 24.5% for the sector - higher than the S&P 500’s 11.5% return.
Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. Taking that into account, here are three industrials stocks we’re passing on.
Nordson (NDSN)
Market Cap: $15.64 billion
Founded in 1954, Nordson Corporation (NASDAQ: NDSN) manufactures dispensing equipment and industrial adhesives, sealants and coatings.
Why Are We Cautious About NDSN?
- 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
- Projected sales growth of 4.6% for the next 12 months suggests sluggish demand
- Eroding returns on capital suggest its historical profit centers are aging
Nordson’s stock price of $280.29 implies a valuation ratio of 24.3x forward P/E. If you’re considering NDSN for your portfolio, see our FREE research report to learn more.
Advanced Energy (AEIS)
Market Cap: $13.11 billion
Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ: AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.
Why Does AEIS Worry Us?
- Annual revenue growth of 5.6% over the last five years was below our standards for the industrials sector
- Earnings per share lagged its peers over the last five years as they only grew by 5.3% annually
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Advanced Energy is trading at $344.51 per share, or 34x forward P/E. Dive into our free research report to see why there are better opportunities than AEIS.
Methode Electronics (MEI)
Market Cap: $390.4 million
Founded in 1946, Methode Electronics (NYSE: MEI) is a global supplier of custom-engineered solutions for Original Equipment Manufacturers (OEMs).
Why Should You Dump MEI?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $11.00 per share, Methode Electronics trades at 10.3x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why MEI doesn’t pass our bar.
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