Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Unfortunately, this role also comes with a demand profile tethered to the ebbs and flows of the broader economy, and investors seem to be forecasting a downturn - over the past six months, the industry has pulled back by 5.7%. This performance was disappointing since the S&P 500 stood firm.
Some companies can grow regardless of the economic backdrop, but the odds aren’t great for the ones we’re analyzing today. Keeping that in mind, here are three industrials stocks we’re swiping left on.
Donaldson (DCI)
Market Cap: $8.49 billion
Playing a vital role in the historic Apollo 11 mission, Donaldson (NYSE: DCI) manufacturers and sells filtration equipment for various industries.
Why Are We Wary of DCI?
- 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
- Estimated sales growth of 2.3% for the next 12 months is soft and implies weaker demand
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 3.7 percentage points
At $70.88 per share, Donaldson trades at 18.5x forward P/E. Check out our free in-depth research report to learn more about why DCI doesn’t pass our bar.
Astec (ASTE)
Market Cap: $960.4 million
Inventing the first ever double-barrel hot-mix asphalt plant, Astec (NASDAQ: ASTE) provides machines and equipment for building roads, processing raw materials, and producing concrete.
Why Do We Steer Clear of ASTE?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 28.1% declines over the past two years
- Projected sales growth of 3.5% for the next 12 months suggests sluggish demand
- Free cash flow margin dropped by 8.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Astec is trading at $41.96 per share, or 14.8x forward P/E. Read our free research report to see why you should think twice about including ASTE in your portfolio.
BrightView (BV)
Market Cap: $1.56 billion
An official field consultant for Major League Baseball, BrightView (NYSE: BV) offers landscaping design, development, and maintenance.
Why Should You Sell BV?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Low returns on capital reflect management’s struggle to allocate funds effectively
BrightView’s stock price of $16.33 implies a valuation ratio of 18.4x forward P/E. If you’re considering BV for your portfolio, see our FREE research report to learn more.
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