What a brutal six months it’s been for Columbus McKinnon. The stock has dropped 60.2% and now trades at $15.29, rattling many shareholders. This might have investors contemplating their next move.
Is now the time to buy Columbus McKinnon, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Columbus McKinnon Will Underperform?
Despite the more favorable entry price, we don't have much confidence in Columbus McKinnon. Here are three reasons why there are better opportunities than CMCO and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Columbus McKinnon grew its sales at a sluggish 3.5% compounded annual growth rate. This fell short of our benchmark for the industrials sector. 
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Columbus McKinnon, its EPS declined by 2.2% annually over the last five years while its revenue grew by 3.5%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Columbus McKinnon’s margin dropped by 10.8 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business. Columbus McKinnon’s free cash flow margin for the trailing 12 months was 2.5%.
Final Judgment
Columbus McKinnon falls short of our quality standards. Following the recent decline, the stock trades at 5.7× forward P/E (or $15.29 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.
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