Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. But this role also comes with a demand profile tethered to the ebbs and flows of the broader economy. Thankfully, industrial end markets were stable over the past six months as the industry’s 11.4% gain has nearly mirrored the S&P 500.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. Keeping that in mind, here is one resilient industrials stock at the top of our wish list and two that may face trouble.
Two Industrials Stocks to Sell:
Cadre (CDRE)
Market Cap: $1.67 billion
Originally known as Safariland, Cadre (NYSE: CDRE) specializes in manufacturing and distributing safety and survivability equipment for first responders.
Why Are We Cautious About CDRE?
- Estimated sales growth of 6.7% for the next 12 months implies demand will slow from its two-year trend
- Earnings growth over the last four years fell short of the peer group average as its EPS only increased by 3.5% annually
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Cadre’s stock price of $41.09 implies a valuation ratio of 28.8x forward P/E. If you’re considering CDRE for your portfolio, see our FREE research report to learn more.
Enviri (NVRI)
Market Cap: $1.44 billion
Cooling America’s first indoor ice rink in the 19th century, Enviri (NYSE: NVRI) offers steel and waste handling services.
Why Do We Pass on NVRI?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Cash burn makes us question whether it can achieve sustainable long-term growth
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Enviri is trading at $17.52 per share, or 10.3x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why NVRI doesn’t pass our bar.
One Industrials Stock to Watch:
SmartRent (SMRT)
Market Cap: $365.2 million
Founded by an employee at a real estate rental company, SmartRent (NYSE: SMRT) provides smart home devices and software for multifamily residential properties, single-family rental homes, and student housing communities.
Why Do We Watch SMRT?
- ARR growth averaged 22.9% over the past two years, showing customers are willing to take multi-year bets on its offerings
- Earnings growth has trumped its peers over the last three years as its EPS has compounded at 24.1% annually
- Returns on capital are increasing as management’s prior bets are starting to bear fruit
At $1.98 per share, SmartRent trades at 97.8x forward EV-to-EBITDA. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
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