What a time it’s been for Keysight. In the past six months alone, the company’s stock price has increased by a massive 40.4%, setting a new 52-week high of $227.13 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 Keysight, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Keysight Not Exciting?
We’re happy investors have made money, but we're swiping left on Keysight for now. Here are three reasons why KEYS doesn't excite us and a stock we'd rather own.
1. Weak Backlog Growth Points to Soft Demand
Investors interested in Inspection Instruments companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Keysight’s future revenue streams.
Keysight’s backlog came in at $2.62 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 1.1%. This performance was underwhelming and suggests that increasing competition is causing challenges in winning new orders. 
2. EPS Took a Dip Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Sadly for Keysight, its EPS declined by 7.3% 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. Unfortunately, Keysight’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Keysight isn’t a terrible business, but it doesn’t pass our bar. Following the recent rally, the stock trades at 26.8× forward P/E (or $227.13 per share). This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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