Hillenbrand has been on fire lately. In the past six months alone, the company’s stock price has rocketed 46%, reaching $31.87 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Hillenbrand, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Hillenbrand Will Underperform?
Despite the momentum, we don't have much confidence in Hillenbrand. Here are three reasons there are better opportunities than HI and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Hillenbrand’s 1.2% annualized revenue growth over the last five years was weak. This was below our standards.
2. EPS Growth Has Stalled
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Hillenbrand’s flat EPS over the last five years was below its 1.2% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Hillenbrand’s margin dropped by 16.4 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. Hillenbrand’s free cash flow margin for the trailing 12 months was breakeven.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Hillenbrand, we’ll be cheering from the sidelines. After the recent rally, the stock trades at 12.4× forward P/E (or $31.87 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now. Let us point you toward our favorite semiconductor picks and shovels play.
Stocks We Would Buy Instead of Hillenbrand
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