What a time it’s been for Garrett Motion. In the past six months alone, the company’s stock price has increased by a massive 75.4%, reaching $32.10 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Garrett Motion, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Garrett Motion Not Exciting?

We’re glad investors have benefited from the price increase, but we don’t have much confidence in Garrett Motion. Here are three reasons you should be careful with GTX, 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 have short-term success, but a top-tier one grows for years. Unfortunately, Garrett Motion’s 2.4% annualized revenue growth over the last five years was sluggish. This was below our standards.

2. Projected Revenue Growth Is Slim

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 Garrett Motion’s revenue to rise by 2.9%. While this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.

3. Low Gross Margin Reveals Weak Structural Profitability

For industrial 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.

Garrett Motion has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 19.8% gross margin over the last five years. That means Garrett Motion paid its suppliers a lot of money ($80.24 for every $100 in revenue) to run its business.

Final Judgment

Garrett Motion isn’t a terrible business, but it isn’t one of our picks. After the recent surge, the stock trades at 10.6× forward EV-to-EBITDA (or $32.10 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. We’d recommend looking at the most dominant software business in the world.

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