Flowserve trades at $52.01 and has moved in lockstep with the market. Its shares have returned 31.7% over the last six months while the S&P 500 has gained 34.7%.
Is there a buying opportunity in Flowserve, 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 for active Edge members.
Why Is Flowserve Not Exciting?
We're swiping left on Flowserve for now. Here are three reasons why FLS doesn't excite us and a stock we'd rather own.
1. Weak Backlog Growth Points to Soft Demand
We can better understand Gas and Liquid Handling companies by analyzing their backlog. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Flowserve’s future revenue streams.
Flowserve’s backlog came in at $2.85 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 1.6%. This performance was underwhelming and suggests that increasing competition is causing challenges in winning new orders. 
2. Projected Revenue Growth Is Slim
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 Flowserve’s revenue to rise by 5.9%, a slight deceleration versus its 3.7% annualized growth for the past five years. This projection doesn't excite us and indicates its products and services will face some demand challenges.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Flowserve has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5%, subpar for an industrials business.
Final Judgment
Flowserve isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 14.6× forward P/E (or $52.01 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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