Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 21.4% for the sector - higher than the S&P 500’s 14.9% return.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. Taking that into account, here are three industrials stocks that may face trouble.
PACCAR (PCAR)
Market Cap: $50.88 billion
Founded more than a century ago, PACCAR (NASDAQ: PCAR) designs and manufactures commercial trucks of various weights and sizes for the commercial trucking industry.
Why Does PCAR Give Us Pause?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Forecasted revenue decline of 10.7% for the upcoming 12 months implies demand will fall even further
- Earnings per share have dipped by 9.9% annually over the past two years, which is concerning because stock prices follow EPS over the long term
PACCAR is trading at $96.95 per share, or 18x forward P/E. Dive into our free research report to see why there are better opportunities than PCAR.
Parker-Hannifin (PH)
Market Cap: $94.75 billion
Founded in 1917, Parker Hannifin (NYSE: PH) is a manufacturer of motion and control systems for a wide variety of mobile, industrial and aerospace markets.
Why Does PH Worry Us?
- Annual sales growth of 2% over the last two years lagged behind its industrials peers as its large revenue base made it difficult to generate incremental demand
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Projected sales growth of 3.9% for the next 12 months suggests sluggish demand
Parker-Hannifin’s stock price of $749.89 implies a valuation ratio of 25.7x forward P/E. To fully understand why you should be careful with PH, check out our full research report (it’s free).
Enviri (NVRI)
Market Cap: $967 million
Cooling America’s first indoor ice rink in the 19th century, Enviri (NYSE: NVRI) offers steel and waste handling services.
Why Should You Sell NVRI?
- Annual revenue growth of 2.7% over the last two years was below our standards for the industrials sector
- Negative free cash flow raises questions about the return timeline for its investments
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $11.99 per share, Enviri trades at 3.1x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why NVRI doesn’t pass our bar.
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