Lindblad Expeditions’s 30.6% return over the past six months has outpaced the S&P 500 by 13.8%, and its stock price has climbed to $13.40 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Lindblad Expeditions, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Lindblad Expeditions Will Underperform?

Despite the momentum, we're swiping left on Lindblad Expeditions for now. Here are three reasons you should be careful with LIND and a stock we'd rather own.

1. Weak Operating Margin Could Cause Trouble

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Lindblad Expeditions’s operating margin has risen over the last 12 months and averaged 3.8% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports lousy profitability for a consumer discretionary business.

2. Cash Flow Margin Set to Decline

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.

Over the next year, analysts predict Lindblad Expeditions’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 8.3% for the last 12 months will decrease to 7%.

3. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Lindblad Expeditions’s five-year average ROIC was negative 10.3%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Lindblad Expeditions, we’ll be cheering from the sidelines. With its shares beating the market recently, the stock trades at 6.4× forward EV-to-EBITDA (or $13.40 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Lindblad Expeditions

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