Over the past six months, Hillman’s stock price fell to $8.22. Shareholders have lost 9.8% of their capital, which is disappointing considering the S&P 500 has climbed by 9%. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Hillman, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Hillman Not Exciting?
Even with the cheaper entry price, we don’t have much confidence in Hillman. Here are three reasons why there are better opportunities than HLMN, plus one stock we’d rather own.
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 the best consistently grow over the long haul. Regrettably, Hillman’s sales grew at a sluggish 2% compounded annual growth rate over the last five years. This was below our standards.
2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
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.
Hillman has shown poor cash profitability relative to peers over the last five years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 2.9%, below what we’d expect for an industrials business.
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? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Hillman historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.4%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.
Final Judgment
Hillman isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 13.1× forward P/E (or $8.22 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at the most dominant software business in the world.
Stocks We Would Buy Instead of Hillman
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