Over the past six months, Itron’s shares (currently trading at $84.38) have posted a disappointing 14.8% loss, well below the S&P 500’s 8.4% gain. This might have investors contemplating their next move.
Is now the time to buy Itron, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Itron Not Exciting?
Even with the cheaper entry price, we don’t have much confidence in Itron. Here are three reasons why there are better opportunities than ITRI, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Itron grew its sales at a sluggish 2.3% compounded annual growth rate. This fell short of our benchmarks.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Itron’s revenue to rise by 2.4%, close to its 2.3% annualized growth for the past five years. This projection doesn’t excite us and indicates its newer products and services will not catalyze better top-line performance yet.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Itron historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.5%, somewhat low compared to the best industrials companies that consistently pump out 20%+.
Final Judgment
Itron’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 14.5× forward P/E (or $84.38 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. We’d suggest looking at one of our all-time favorite software stocks.
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