Quanex has gotten torched over the last six months - since August 2024, its stock price has dropped 25.5% to $20.73 per share. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Quanex, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why NX doesn't excite us and a stock we'd rather own.
Why Do We Think Quanex Will Underperform?
Starting in the seamless tube industry, Quanex (NYSE:NX) manufactures building products like window, door, kitchen, and bath cabinet components.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Quanex’s sales grew at a mediocre 7.4% compounded annual growth rate over the last five years. This was below our standard for the industrials sector.
2. EPS Took a Dip Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Sadly for Quanex, its EPS declined by 9.9% annually over the last two years while its revenue grew by 2.3%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Quanex’s margin dropped by 4.8 percentage points over the last five years. If its declines continue, it could signal higher capital intensity. Quanex’s free cash flow margin for the trailing 12 months was 4%.
Final Judgment
We see the value of companies helping their customers, but in the case of Quanex, we’re out. After the recent drawdown, the stock trades at 9.2× forward price-to-earnings (or $20.73 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. Let us point you toward a dominant Aerospace business that has perfected its M&A strategy.
Stocks We Like More Than Quanex
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. 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.
