What a time it’s been for Standex. In the past six months alone, the company’s stock price has increased by a massive 53.5%, reaching $247.87 per share. This run-up might have investors contemplating their next move.

Is there a buying opportunity in Standex, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Standex Not Exciting?

We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons there are better opportunities than SXI and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Standex’s sales grew at a mediocre 6.9% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector.

2. Free Cash Flow Margin Dropping

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.

As you can see below, Standex’s margin dropped by 4.4 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Standex’s free cash flow margin for the trailing 12 months was 4.9%.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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. Unfortunately, Standex’s ROIC averaged 1.2 percentage point decreases over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Standex isn’t a terrible business, but it doesn’t pass our quality test. After the recent rally, the stock trades at 28.3× forward P/E (or $247.87 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. Let us point you toward a top digital advertising platform riding the creator economy.

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