Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the market seems to be baking in a prolonged downturn as the industry has shed 6% over the past six months. This drop was disappointing since the S&P 500 held steady.
Some companies can grow regardless of the economic backdrop, but the odds aren’t great for the ones we’re analyzing today. Keeping that in mind, here are three industrials stocks we’re swiping left on.
Distribution Solutions (DSGR)
Market Cap: $1.38 billion
Founded in 1952, Distribution Solutions (NASDAQ:DSGR) provides supply chain solutions and distributes industrial, safety, and maintenance products to various industries.
Why Is DSGR Not Exciting?
- Operating margin of 5.3% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Low free cash flow margin of 1.2% for the last four years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Distribution Solutions’s stock price of $29.98 implies a valuation ratio of 17.9x forward price-to-earnings. Read our free research report to see why you should think twice about including DSGR in your portfolio.
Albany (AIN)
Market Cap: $2.25 billion
Founded in 1895, Albany (NYSE:AIN) is a global textiles and materials processing company, specializing in machine clothing for paper mills and engineered composite structures for aerospace and other industries.
Why Are We Out on AIN?
- Annual revenue growth of 3.1% over the last five years was below our standards for the industrials sector
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 7.8 percentage points
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 5% annually
Albany is trading at $72.85 per share, or 19x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than AIN.
Crane (CR)
Market Cap: $8.86 billion
Based in Connecticut, Crane (NYSE:CR) is a diversified manufacturer of engineered industrial products, including fluid handling, and aerospace technologies.
Why Do We Pass on CR?
- 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
- Anticipated sales growth of 6.8% for the next year implies demand will be shaky
- Earnings per share have contracted by 4.1% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
At $154.32 per share, Crane trades at 27.8x forward price-to-earnings. To fully understand why you should be careful with CR, check out our full research report (it’s free).
Stocks We Like More
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Put yourself in the driver’s seat by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
