The past six months have been a windfall for Park-Ohio’s shareholders. The company’s stock price has jumped 82.5%, setting a new 52-week high of $37.94 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Park-Ohio, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Park-Ohio Not Exciting?
We’re happy investors have made money, but we don’t have much confidence in Park-Ohio. Here are three reasons you should be careful with PKOH, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Park-Ohio grew its sales at a tepid 4.6% compounded annual growth rate. This was below our standard for the industrials sector.
2. 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 Park-Ohio, its EPS declined by more than its revenue over the last two years, dropping 8.3%. This tells us the company struggled to adjust to shrinking demand.
3. Cash Burn Ignites Concerns
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.
Park-Ohio’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 1.4%, meaning it lit $1.42 of cash on fire for every $100 in revenue.
Final Judgment
Park-Ohio isn’t a terrible business, but it doesn’t pass our quality test. After the recent rally, the stock trades at 11.9× forward P/E (or $37.94 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re fairly confident there are better stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Would Buy Instead of Park-Ohio
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