Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 45.4% gain over the past six months, beating the S&P 500 by 12.7 percentage points.
Regardless of these results, investors should tread carefully. The diversity of companies in this space means that not all are created equal or well-positioned for the inescapable downturn. On that note, here is one industrials stock boasting a durable advantage and two best left ignored.
Two Industrials Stocks to Sell:
Lucid (LCID)
Market Cap: $7.61 billion
Founded by a former Tesla Vice President, Lucid Group (NASDAQ: LCID) designs, manufactures, and sells luxury electric vehicles with long-range capabilities.
Why Are We Cautious About LCID?
- Negative 155% gross margin means it loses money on every sale and must pivot or scale quickly to survive
- Cash-burning history makes us doubt the long-term viability of its business model
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Lucid’s stock price of $24.67 implies a valuation ratio of 38.3x forward price-to-sales. If you’re considering LCID for your portfolio, see our FREE research report to learn more.
Redwire (RDW)
Market Cap: $1.67 billion
Based in Jacksonville, Florida, Redwire (NYSE: RDW) is a provider of systems and components used in space infrastructure.
Why Do We Pass on RDW?
- Historically negative EPS raises concerns for risk-averse investors and makes its earnings potential harder to gauge
- 27.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $10.80 per share, Redwire trades at 12.2x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including RDW in your portfolio.
One Industrials Stock to Watch:
KBR (KBR)
Market Cap: $6.11 billion
Known for projects like the construction of Guantanamo Bay, KBR provides professional services and technologies, specializing in engineering, construction, and government services sectors.
Why Does KBR Stand Out?
- 9.9% annual revenue growth over the last two years surpassed the sector average as its offerings resonated with customers
- Operating margin expanded by 6.3 percentage points over the last five years as it scaled and became more efficient
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 16.6% exceeded its revenue gains over the last five years
KBR is trading at $47.42 per share, or 12.4x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
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