Whether you see them or not, industrials businesses play a crucial part in our daily activities. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the industry has underperformed the market over the past six months as its 2.8% return lagged the S&P 500 by 2.2 percentage points.
Some companies can grow regardless of the economic backdrop, but the odds aren’t great for the ones we’re analyzing today. Taking that into account, here are three industrials stocks best left ignored.
AECOM (ACM)
Market Cap: $14.92 billion
Founded in 1990 when a group of engineers from five companies decided to merge, AECOM (NYSE:ACM) provides various infrastructure consulting services.
Why Does ACM Give Us Pause?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 1.6% declines over the past two years
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 6.4%
- Poor expense management has led to an operating margin of 4.3% that is below the industry average
AECOM’s stock price of $113 implies a valuation ratio of 22x forward P/E. Read our free research report to see why you should think twice about including ACM in your portfolio.
Commercial Vehicle Group (CVGI)
Market Cap: $58.94 million
Formed from a partnership between two distinct companies, CVG (NASDAQ:CVGI) offers various components used in vehicles and systems used in warehouses.
Why Should You Sell CVGI?
- Sales tumbled by 2.8% annually over the last five years, showing market trends are working against its favor during this cycle
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Commercial Vehicle Group is trading at $1.80 per share, or 13x forward P/E. If you’re considering CVGI for your portfolio, see our FREE research report to learn more.
Champion Homes (SKY)
Market Cap: $3.69 billion
Founded in 1951, Champion Homes (NYSE:SKY) is a manufacturer of modular homes and buildings in North America.
Why Are We Hesitant About SKY?
- Underwhelming unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Earnings per share have dipped by 28.9% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
At $64.46 per share, Champion Homes trades at 16.3x forward P/E. Read our free research report to see why you should think twice about including SKY in your portfolio.
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