Over the last six months, Tennant’s shares have sunk to $88.70, producing a disappointing 11.6% loss - a stark contrast to the S&P 500’s 14.4% gain. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Tennant, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.Even with the cheaper entry price, we don't have much confidence in Tennant. Here are three reasons why there are better opportunities than TNC and a stock we'd rather own.
Why Is Tennant Not Exciting?
As the world’s largest manufacturer of autonomous mobile robots, Tennant (NYSE:TNC) designs, manufactures, and sells cleaning products to various sectors.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Over the last five years, Tennant grew its sales at a sluggish 2.4% compounded annual growth rate. This was below our standards. 
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 Tennant’s revenue to rise by 5.1%, a deceleration versus its 8.5% annualized growth for the past two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Tennant’s margin dropped by 1 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business. Tennant’s free cash flow margin for the trailing 12 months was 7.6%.
Final Judgment
Tennant isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 14x forward price-to-earnings (or $88.70 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d recommend looking at FTAI Aviation, an aerospace company benefiting from Boeing and Airbus’s struggles.
Stocks We Like More Than Tennant
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