What a brutal six months it’s been for Itron. The stock has dropped 33.5% and now trades at a new 52-week low of $82.88, rattling many shareholders. This might have investors contemplating their next move.
Is now the time to buy Itron, 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 Itron Not Exciting?
Despite the more favorable entry price, we're swiping left on Itron for now. Here are three reasons we avoid ITRI 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 many enduring ones grow for years. Unfortunately, Itron’s 1.7% annualized revenue growth over the last five years was sluggish. This fell short of our benchmarks.
2. Projected Revenue Growth Is Slim
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 Itron’s revenue to rise by 2.1%, a slight deceleration versus its 1.7% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will see some demand headwinds.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Itron historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.6%, somewhat low compared to the best industrials companies that consistently pump out 20%+.
Final Judgment
Itron isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 14.2× forward P/E (or $82.88 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.
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