Quanex trades at $20.07 per share and has stayed right on track with the overall market, gaining 16.3% over the last six months. At the same time, the S&P 500 has returned 16.4%.
Is now the time to buy Quanex, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Quanex Will Underperform?
We’re sitting this one out for now. Here are three reasons we avoid NX, plus one stock we’d rather own.
1. Projected Revenue Growth Shows Limited Upside
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 Quanex’s revenue to stall, a deceleration versus its 12.5% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will face some demand challenges.
2. EPS Growth Has Stalled
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Quanex’s flat EPS over the last five years was below its 12.5% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
Over the last few years, Quanex’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Quanex, we’ll be cheering from the sidelines. That said, the stock currently trades at 10.6× forward P/E (or $20.07 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.
Stocks We Would Buy Instead of Quanex
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