Lindsay has been treading water for the past six months, recording a small loss of 4.8% while holding steady at $113.13. The stock also fell short of the S&P 500’s 8% gain during that period.
Is now the time to buy Lindsay, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Lindsay Not Exciting?
We’re cautious about Lindsay. Here are three reasons why there are better opportunities than LNN, plus one 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 many enduring ones grow for years. Unfortunately, Lindsay’s 4.8% annualized revenue growth over the last five years was tepid. This was below our standard for the industrials sector.
2. 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.
Lindsay’s unimpressive 6.4% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
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).
Unfortunately, Lindsay’s ROIC averaged 4.1 percentage point decreases each year 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
Lindsay isn’t a terrible business, but it doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 18.4× forward P/E (or $113.13 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re fairly confident there are better stocks to buy right now. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.
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