Although the S&P 500 is down 10.6% over the past six months, Oshkosh’s stock price has fallen further to $84.35, losing shareholders 15.8% of their capital. This might have investors contemplating their next move.
Is there a buying opportunity in Oshkosh, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Despite the more favorable entry price, we're cautious about Oshkosh. Here are three reasons why you should be careful with OSK and a stock we'd rather own.
Why Is Oshkosh Not Exciting?
Oshkosh (NYSE: OSK) manufactures specialty vehicles for the defense, fire, emergency, and commercial industry, operating various brand subsidiaries within each industry.
1. Weak Backlog Growth Points to Soft Demand
Investors interested in Heavy Transportation Equipment companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Oshkosh’s future revenue streams.
Oshkosh’s backlog came in at $14.19 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 7.5%. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in winning new orders. 
2. Revenue Projections Show Stormy Skies Ahead
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 Oshkosh’s revenue to drop by 2%, a decrease from its 14% annualized growth for the past two years. This projection is underwhelming and suggests its products and services will face some demand challenges.
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, Oshkosh’s margin dropped by 8.4 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. Oshkosh’s free cash flow margin for the trailing 12 months was 2.5%.
Final Judgment
Oshkosh isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 7.7× forward price-to-earnings (or $84.35 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.
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