Over the past six months, Kadant’s shares (currently trading at $326.02) have posted a disappointing 17.6% loss while the S&P 500 was flat. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Kadant, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Kadant Not Exciting?
Even though the stock has become cheaper, we don't have much confidence in Kadant. Here are three reasons why you should be careful with KAI and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Kadant’s recent performance shows its demand has slowed as its annualized revenue growth of 7.2% over the last two years was below its five-year trend. 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Kadant’s revenue to stall, a deceleration versus its 7.2% annualized growth for the past two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.
3. Recent EPS Growth Below Our Standards
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.
Kadant’s EPS grew at a weak 3.4% compounded annual growth rate over the last two years, lower than its 7.2% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Kadant isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 32.1× forward P/E (or $326.02 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.
Stocks We Would Buy Instead of Kadant
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