Helios has had an impressive run over the past six months as its shares have beaten the S&P 500 by 16.8%. The stock now trades at $80.44, marking a 25.5% gain. 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 Helios, 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 Do We Think Helios Will Underperform?
We’re glad investors have benefited from the price increase, but we don’t have much confidence in Helios. Here are three reasons why there are better opportunities than HLIO, plus one stock we’d rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
In addition to reported revenue, organic revenue is a useful data point for analyzing Gas and Liquid Handling companies. This metric gives visibility into Helios’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Helios’s organic revenue averaged 3.3% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
2. Shrinking Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Analyzing the trend in its profitability, Helios’s operating margin decreased by 8.4 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 9%.
3. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
Unfortunately, Helios’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Helios, we’ll be cheering from the sidelines. With its shares beating the market recently, the stock trades at 27.1× forward P/E (or $80.44 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d suggest looking at one of our top software and edge computing picks.
Stocks We Would Buy Instead of Helios
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