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Whether you see them or not, industrials businesses play a crucial part in our daily activities. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the market seems to be baking in a prolonged downturn as the industry has shed 6.6% over the past six months. This performance was worse than the S&P 500’s 1% fall.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. On that note, here is one resilient industrials stock at the top of our wish list and two we’re passing on.
Two Industrials Stocks to Sell:
Sunrun (RUN)
Market Cap: $2.72 billion
Helping homeowners use solar energy to power their homes, Sunrun (NASDAQ:RUN) provides residential solar electricity, specializing in panel installation and leasing services.
Why Does RUN Give Us Pause?
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Customers postponed purchases of its products and services this cycle as its revenue declined by 7.1% annually over the last two years
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Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
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Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Sunrun’s stock price of $11.90 implies a valuation ratio of 17x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why RUN doesn’t pass our bar.
First Solar (FSLR)
Market Cap: $20.55 billion
Headquartered in Arizona, First Solar (NASDAQ:FSLR) specializes in manufacturing solar panels and providing photovoltaic solar energy solutions.
Why Is FSLR Not Exciting?
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Annual revenue growth of 6.8% over the last five years was below our standards for the industrials sector
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Free cash flow margin dropped by 18.5 percentage points over the last five years, implying the company increased its investment activities to fend off competitors
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Short cash runway increases the probability of a capital raise that dilutes existing shareholders
First Solar is trading at $191.99 per share, or 9.5x forward P/E. Dive into our free research report to see why there are better opportunities than FSLR.
One Industrials Stock to Watch:
Karat Packaging (KRT)
Market Cap: $606.5 million
Founded as Lollicup, Karat Packaging (NASDAQ: KRT) distributes and manufactures environmentally-friendly disposable foodservice packaging solutions.
Why Could KRT Be a Winner?
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Solid gross margin and unit economics free up capital for marketing and product development efforts
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Free cash flow margin increased by 16.2 percentage points over the last five years, giving the company more capital to invest or return to shareholders
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Industry-leading 15.8% return on capital demonstrates management’s skill in finding high-return investments