What a brutal six months it’s been for Hyster-Yale Materials Handling. The stock has dropped 32.1% and now trades at $28.19, rattling many shareholders. This may have investors wondering how to approach the situation.
Is now the time to buy Hyster-Yale Materials Handling, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.
Why Do We Think Hyster-Yale Materials Handling Will Underperform?
Even with the cheaper entry price, we don't have much confidence in Hyster-Yale Materials Handling. Here are three reasons we avoid HY 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 experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Hyster-Yale Materials Handling grew its sales at a tepid 6% compounded annual growth rate. This fell short of our benchmark for the industrials sector.
2. Revenue Projections Show Stormy Skies Ahead
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 Hyster-Yale Materials Handling’s revenue to drop by 6.4%, a decrease from its 6% annualized growth for the past five years. This projection doesn't excite us and suggests its products and services will face some demand challenges.
3. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Hyster-Yale Materials Handling, its EPS declined by 2.6% annually over the last five years while its revenue grew by 6%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
We see the value of companies helping their customers, but in the case of Hyster-Yale Materials Handling, we’re out. After the recent drawdown, the stock trades at 10.3× forward EV-to-EBITDA (or $28.19 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward the most entrenched endpoint security platform on the market.
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