What a brutal six months it’s been for Northwest Pipe. The stock has dropped 21.5% and now trades at $38.66, rattling many shareholders. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Northwest Pipe, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Northwest Pipe Not Exciting?
Even though the stock has become cheaper, we don't have much confidence in Northwest Pipe. Here are three reasons why NWPX doesn't excite us and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Northwest Pipe’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 5.2% over the last two years was well below its five-year trend. 
2. Projected Revenue Growth Shows Limited Upside
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 Northwest Pipe’s revenue to stall, a deceleration versus its 11.6% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will face some demand challenges.
3. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Northwest Pipe’s EPS grew at a weak 1.7% compounded annual growth rate over the last five years, lower than its 11.6% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Northwest Pipe isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 11.2× forward P/E (or $38.66 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at one of our top software and edge computing picks.
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