L.B. Foster currently trades at $26.03 per share and has shown little upside over the past six months, posting a middling return of 1%. The stock also fell short of the S&P 500’s 10.5% gain during that period.
Is now the time to buy L.B. Foster, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think L.B. Foster Will Underperform?
We're sitting this one out for now. Here are three reasons there are better opportunities than FSTR and a stock we'd rather own.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. L.B. Foster struggled to consistently generate demand over the last five years as its sales dropped at a 1.6% annual rate. This was below our standards and signals it’s a low quality business.
2. Breakeven Free Cash Flow Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
L.B. Foster broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
L.B. Foster historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.5%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of L.B. Foster, we’ll be cheering from the sidelines. With its shares trailing the market in recent months, the stock trades at 12.6× forward P/E (or $26.03 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are more exciting stocks to buy at the moment. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Would Buy Instead of L.B. Foster
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