Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. If a stock sees negative estimate revisions and its price performance is not encouraging, it is advisable to avoid it until the stock sees some positive revisions.
One such stock that investors should avoid at the moment is Amphenol Corporation APH.
Let’s have a look at the unfavorable factors affecting the stock:
Earnings Estimate Revisions
Analysts have not been favoring the stock lately. For current quarter, over the last two months, three analysts lowered their estimates for Amphenol against no upward revisions. The consensus estimate is pegged at 66 cents per share down from 68 cents.
Amphenol has underperformed the Zacks categorized Electronics - Connectors industry in the last three months with an average return of 3.7% compared with 4.7% for the latter. Bulk of the company’s revenues comes from sales to the communications industry, demand for which is subject to rapid technological change. In addition, these markets are dominated by several large manufacturers and operators who exert significant price pressure on Amphenol. Furthermore, increasing cost of raw materials is also a matter of concern and is likely to be an additional drag on its profitability.
Earnings Growth
While Amphenol has a historical EPS (earnings per share) growth rate of 7.49% investors should really focus on the projected growth. Here, the company is looking to grow at a rate of 6.54%, missing the industry average which expects EPS growth of 8.41%.
PE Ratio
A key metric that investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world.
The company has a PE of 23.97, which compares unfavorably with the market at large, as the PE for the industry stands at about 17.74.
P/S Ratio
Another key metric to note is the Price/Sales ratio. Right now, the company has a P/S ratio of about 3.30. This is higher than the industry average, which comes in at 1.91. This compares unfavorably for the company and its scope for growth looks bleak at the moment.
Bottom Line
Taking all these matrixes and a Zacks Rank #4 (Sell) into consideration we would like to caution investors about this stock.
Stocks to Consider
Some better-ranked stocks in the industry include Barloworld Limited BRRAY, Hitachi, Ltd. HTHIY and Swire Pacific Limited SWRAY. All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.