Helios has had an impressive run over the past six months as its shares have beaten the S&P 500 by 14.5%. The stock now trades at $49.60, marking a 19.9% gain. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Helios, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Helios Will Underperform?

We’re happy investors have made money, but we're cautious about Helios. Here are three reasons why HLIO doesn't excite us and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

We can better understand Gas and Liquid Handling companies by analyzing their organic revenue. This metric gives visibility into Helios’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Helios’s organic revenue averaged 5.6% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Helios might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Helios, its EPS declined by 2.9% annually over the last five years while its revenue grew by 8.8%. This tells us the company became less profitable on a per-share basis as it expanded.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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. Over the last few years, Helios’s ROIC has unfortunately decreased. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

We see the value of companies helping their customers, but in the case of Helios, we’re out. With its shares beating the market recently, the stock trades at 22.9× forward EV-to-EBITDA (or $49.60 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at a top digital advertising platform riding the creator economy.

Stocks We Would Buy Instead of Helios

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