Over the past six months, Advanced Energy has been a great trade, beating the S&P 500 by 12.7%. Its stock price has climbed to $134.91, representing a healthy 17.3% increase. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Advanced Energy, 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 Do We Think Advanced Energy Will Underperform?
We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons why we avoid AEIS 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. Advanced Energy’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 8.8% over the last two years. Advanced Energy isn’t alone in its struggles as the Electronic Components industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.
Advanced Energy Year-On-Year Revenue Growth 2. Free Cash Flow Margin Dropping
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.
As you can see below, Advanced Energy’s margin dropped by 6.6 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle. Advanced Energy’s free cash flow margin for the trailing 12 months was 6.3%.
Advanced Energy Trailing 12-Month Free Cash Flow Margin 3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Advanced Energy’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Advanced Energy Trailing 12-Month Return On Invested Capital Final Judgment
Advanced Energy falls short of our quality standards. With its shares beating the market recently, the stock trades at 26.4× forward P/E (or $134.91 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. We’d suggest looking at a top digital advertising platform riding the creator economy.
繼續閱讀Stocks We Like More Than Advanced Energy
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
