Over the past six months, Thermon’s shares (currently trading at $26.08) have posted a disappointing 9.5% loss, well below the S&P 500’s 17.7% gain. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Thermon, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Thermon Not Exciting?
Even though the stock has become cheaper, we're cautious about Thermon. Here are three reasons why THR doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Thermon grew its sales at a mediocre 7.1% compounded annual growth rate. This fell short of our benchmark for the industrials sector.
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 Thermon’s revenue to rise by 3.2%, close to its 7.1% annualized growth for the past five years. This projection is underwhelming and suggests its newer products and services will not lead to better top-line performance yet.
3. Recent EPS Growth Below Our Standards
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Thermon’s unimpressive 4.3% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
Thermon isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 10.1× forward EV-to-EBITDA (or $26.08 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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