Simpson’s 26.3% return over the past six months has outpaced the S&P 500 by 19.6%, and its stock price has climbed to $210 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Simpson, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Simpson Not Exciting?
Despite the momentum, we’re swiping left on Simpson for now. Here are three reasons why there are better opportunities than SSD, plus one stock we’d rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Simpson’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.8% over the last two years was well below its five-year trend. 
2. EPS Took a Dip Over the Last Two Years
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.
Sadly for Simpson, its EPS declined by 1.5% annually over the last two years while its revenue grew by 3.8%. This tells us the company became less profitable on a per-share basis as it expanded.
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).
Over the last few years, Simpson’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Simpson isn’t a terrible business, but it isn’t one of our picks. With its shares beating the market recently, the stock trades at 22.9× forward P/E (or $210 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a dominant aerospace business that has perfected its M&A strategy.
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