Littelfuse has been on fire lately. In the past six months alone, the company’s stock price has rocketed 51.7%, setting a new 52-week high of $379.05 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Littelfuse, 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 Is Littelfuse Not Exciting?
Despite the momentum, we don't have much confidence in Littelfuse. Here are three reasons we avoid LFUS and a stock we'd rather own.
1. Revenue Growth Flatlining
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Littelfuse’s recent performance shows its demand has slowed significantly as its revenue was flat over the last two years. 
2. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Littelfuse, its EPS declined by 4.7% annually over the last two years while its revenue was flat. This tells us the company struggled to adjust to choppy demand.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Littelfuse’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Littelfuse’s business quality ultimately falls short of our standards. After the recent rally, the stock trades at 28.4× forward P/E (or $379.05 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at one of our top software and edge computing picks.
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