Ducommun’s 26% return over the past six months has outpaced the S&P 500 by 15.9%, and its stock price has climbed to $113.58 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy Ducommun, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Ducommun Not Exciting?

We’re happy investors have made money, but we're swiping left on Ducommun for now. Here are three reasons we avoid DCO and a stock we'd rather own.

1. Weak Backlog Growth Points to Soft Demand

We can better understand Aerospace companies by analyzing their backlog. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Ducommun’s future revenue streams.

Ducommun’s backlog came in at $1.14 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 4.8%. This performance was underwhelming and suggests that increasing competition is causing challenges in winning new orders.

2. Shrinking Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Looking at the trend in its profitability, Ducommun’s operating margin decreased by 12.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Ducommun’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its operating margin for the trailing 12 months was negative 4.5%.

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? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Ducommun historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.8%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

Final Judgment

Ducommun’s business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at 27.2× forward P/E (or $113.58 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Ducommun

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

Don’t wait for the next volatility shock. Check out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.