Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 28.1% for the sector - higher than the S&P 500’s 18.8% return.
Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. On that note, here are three industrials stocks that may face trouble.
Hudson Technologies (HDSN)
Market Cap: $433.6 million
Founded in 1991, Hudson Technologies (NASDAQ: HDSN) specializes in refrigerant services and solutions, providing refrigerant sales, reclamation, and recycling.
Why Is HDSN Not Exciting?
- Annual sales declines of 14.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share have contracted by 46.8% 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
At $9.93 per share, Hudson Technologies trades at 11x forward EV-to-EBITDA. To fully understand why you should be careful with HDSN, check out our full research report (it’s free).
Textron (TXT)
Market Cap: $15.06 billion
Listed on the NYSE in 1947, Textron (NYSE: TXT) provides products and services in the aerospace, defense, industrial, and finance sectors.
Why Are We Wary of TXT?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 2.3% for the last five years
- 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
- Free cash flow margin shrank by 6.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Textron’s stock price of $83.81 implies a valuation ratio of 13.1x forward P/E. If you’re considering TXT for your portfolio, see our FREE research report to learn more.
Whirlpool (WHR)
Market Cap: $4.39 billion
Credited with introducing the first automatic washing machine, Whirlpool (NYSE: WHR) is a manufacturer of a variety of home appliances.
Why Should You Sell WHR?
- Disappointing unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- High net-debt-to-EBITDA ratio of 9× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Whirlpool is trading at $78.52 per share, or 7.7x forward P/E. Dive into our free research report to see why there are better opportunities than WHR.
Stocks We Like More
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