Over the past six months, Luxfer has been a great trade, beating the S&P 500 by 6.7%. Its stock price has climbed to $17.31, representing a healthy 10.9% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Luxfer, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why do we think Luxfer will underperform?
We’re happy investors have made money, but we don’t have much confidence in Luxfer. Here are three reasons you should be careful with LXFR, plus one stock we’d rather own.
1. Long-term revenue growth disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Luxfer’s 1.3% annualized revenue growth over the last five years was weak. 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 Luxfer’s revenue to rise by 1.2%, according to S&P. While this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.
3. EPS trending down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Luxfer, its EPS declined by 2.1% annually over the last five years while its revenue grew by 1.3%. This tells us the company became less profitable on a per-share basis as it expanded.
Final judgment
We cheer for all companies making their customers lives easier, but in the case of Luxfer, we’ll be cheering from the sidelines. With its shares beating the market recently, the stock trades at 16.3× forward P/E (or $17.31 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.
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