Over the past six months, Trimble’s shares (currently trading at $65.87) have posted a disappointing 19.6% loss while the S&P 500 was down 1%. This might have investors contemplating their next move.
Is now the time to buy Trimble, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Trimble Will Underperform?
Even though the stock has become cheaper, we don't have much confidence in Trimble. Here are three reasons why TRMB doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Trimble’s 2.6% annualized revenue growth over the last five years was sluggish. This fell short of our benchmarks.
2. Slow Organic Growth Suggests Waning Demand In Core Business
We can better understand Internet of Things companies by analyzing their organic revenue. This metric gives visibility into Trimble’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Trimble’s organic revenue averaged 7.3% year-on-year growth. This performance slightly lagged the sector and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
3. Free Cash Flow Margin Dropping
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.
As you can see below, Trimble’s margin dropped by 9.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Trimble’s free cash flow margin for the trailing 12 months was 10.1%.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Trimble, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 18.6× forward P/E (or $65.87 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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