Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the industry’s six-month return of 4.9% has fallen short of the S&P 500’s 18% rise.
A cautious approach is imperative when dabbling in these companies as the losers can be left for dead when the cycle naturally turns and the winners consolidate. On that note, here are three industrials stocks we’re passing on.
WillScot Mobile Mini (WSC)
Market Cap: $3.32 billion
Originally focusing on mobile offices for construction sites, WillScot (NASDAQ:WSC) provides ready-to-use temporary spaces, largely for longer-term lease.
Why Are We Bearish on WSC?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2.4% annually over the last two years
- Earnings per share were flat over the last five years and fell short of the peer group average
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $18.36 per share, WillScot Mobile Mini trades at 15.3x forward P/E. Read our free research report to see why you should think twice about including WSC in your portfolio.
Apogee (APOG)
Market Cap: $784.2 million
Involved in the design of the Apple Store on Fifth Avenue in New York City, Apogee (NASDAQ:APOG) sells architectural products and services such as high-performance glass for commercial buildings.
Why Do We Avoid APOG?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Earnings per share have contracted by 17.8% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Apogee’s stock price of $37.61 implies a valuation ratio of 12.2x forward P/E. Dive into our free research report to see why there are better opportunities than APOG.
Global Industrial (GIC)
Market Cap: $1.59 billion
Formerly known as Systemax, Global Industrial (NYSE:GIC) distributes industrial and commercial products to businesses and institutions.
Why Are We Wary of GIC?
- 3.3% annual revenue growth over the last two years was slower than its industrials peers
- Flat earnings per share over the last two years lagged its peers
- Eroding returns on capital suggest its historical profit centers are aging
Global Industrial is trading at $41.87 per share, or 20x forward P/E. Check out our free in-depth research report to learn more about why GIC doesn’t pass our bar.
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