What a time it’s been for Mayville Engineering. In the past six months alone, the company’s stock price has increased by a massive 54.2%, setting a new 52-week high of $22.12 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 Mayville Engineering, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Mayville Engineering Not Exciting?
Despite the momentum, we're swiping left on Mayville Engineering for now. Here are three reasons we avoid MEC and a stock we'd rather own.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Mayville Engineering’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 3.1% over the last two years. 
2. Low Gross Margin Reveals Weak Structural Profitability
Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.
Mayville Engineering has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 12.8% gross margin over the last five years. Said differently, Mayville Engineering had to pay a chunky $87.16 to its suppliers for every $100 in revenue. 
3. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Mayville Engineering, its EPS declined by more than its revenue over the last two years, dropping 52.4%. This tells us the company struggled to adjust to shrinking demand.
Final Judgment
Mayville Engineering isn’t a terrible business, but it doesn’t pass our quality test. After the recent rally, the stock trades at 98.2× forward P/E (or $22.12 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at one of our top software and edge computing picks.
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