Over the past six months, BWX’s shares (currently trading at $104.17) have posted a disappointing 16.7% loss while the S&P 500 was down 8.9%. This might have investors contemplating their next move.
Is there a buying opportunity in BWX, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free .
Even though the stock has become cheaper, we're cautious about BWX. Here are three reasons why you should be careful with BWXT and a stock we'd rather own.
Why Is BWX Not Exciting?
Contributing components and materials to the famous Manhattan Project in the 1940s, BWX (NYSE:BWXT) is a manufacturer and service provider of nuclear components and fuel for government and commercial industries.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, BWX’s 7.4% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the industrials sector.
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
BWX’s EPS grew at an unimpressive 4.9% compounded annual growth rate over the last five years, lower than its 7.4% annualized revenue growth. 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. Unfortunately, BWX’s ROIC averaged 4.2 percentage point decreases over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
BWX’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 29.9× forward price-to-earnings (or $104.17 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 investment opportunities out there. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy .
Stocks We Like More Than BWX
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