Hyster-Yale Materials Handling currently trades at $31.70 per share and has shown little upside over the past six months, posting a small loss of 2.9%. The stock also fell short of the S&P 500’s 9% gain during that period.
Is there a buying opportunity in Hyster-Yale Materials Handling, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Hyster-Yale Materials Handling Will Underperform?
We don’t have much confidence in Hyster-Yale Materials Handling. Here are three reasons why there are better opportunities than HY, 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. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Hyster-Yale Materials Handling’s 5.8% annualized revenue growth over the last five years was tepid. This was below our standard for the industrials sector.
2. Breakeven Free Cash Flow Limits Reinvestment Potential
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.
Hyster-Yale Materials Handling broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.
3. Restricted Access to Capital Increases Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.
Hyster-Yale Materials Handling posted negative $26.3 million of EBITDA over the last 12 months, and its $359.1 million of debt exceeds the $81.8 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
We implore our readers to tread carefully because credit agencies could downgrade Hyster-Yale Materials Handling if its unprofitable ways continue, making incremental borrowing more expensive and restricting growth prospects. The company could also be backed into a corner if the market turns unexpectedly. We hope Hyster-Yale Materials Handling can improve its profitability and remain cautious until then.
Final Judgment
Hyster-Yale Materials Handling falls short of our quality standards. With its shares trailing the market in recent months, the stock trades at 11.4× forward EV-to-EBITDA (or $31.70 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Would Buy Instead of Hyster-Yale Materials Handling
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