Corning’s 39.7% return over the past six months has outpaced the S&P 500 by 29.2%, and its stock price has climbed to $67.43 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Corning, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Corning Not Exciting?
Despite the momentum, we don't have much confidence in Corning. Here are three reasons there are better opportunities than GLW and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Corning’s 6.1% annualized revenue growth over the last five years was mediocre. This was below our standard for the industrials sector.
2. 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, Corning’s margin dropped by 4.1 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Corning’s free cash flow margin for the trailing 12 months was 9.8%.
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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Corning historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.9%, somewhat low compared to the best industrials companies that consistently pump out 20%+.
Final Judgment
Corning isn’t a terrible business, but it isn’t one of our picks. With its shares outperforming the market lately, the stock trades at 26.8× forward P/E (or $67.43 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d suggest looking at one of our top software and edge computing picks.
Stocks We Would Buy Instead of Corning
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