Mayville Engineering has been on fire lately. In the past six months alone, the company’s stock price has rocketed 55.4%, reaching $20.74 per share. This run-up might have investors contemplating their next move.
Is now the time to buy Mayville Engineering, 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 Mayville Engineering Not Exciting?
We’re happy investors have made money, but we're cautious about Mayville Engineering. Here are three reasons why MEC doesn't excite us and a stock we'd rather own.
1. Revenue Tumbling Downwards
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Mayville Engineering’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 3.6% over the last two years. 
2. Low Gross Margin Reveals Weak Structural Profitability
For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.
Mayville Engineering has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 12.6% gross margin over the last five years. That means Mayville Engineering paid its suppliers a lot of money ($87.42 for every $100 in revenue) to run its business. 
3. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Mayville Engineering, its EPS declined by more than its revenue over the last two years, dropping 55.2%. This tells us the company struggled to adjust to shrinking demand.
Final Judgment
Mayville Engineering isn’t a terrible business, but it doesn’t pass our bar. After the recent surge, the stock trades at 108.1× forward P/E (or $20.74 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. Let us point you toward one of our top software and edge computing picks.
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