Huntington Ingalls has been on fire lately. In the past six months alone, the company’s stock price has rocketed 43.6%, reaching $400.25 per share. This run-up might have investors contemplating their next move.
Is now the time to buy Huntington Ingalls, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Huntington Ingalls Will Underperform?
We’re happy investors have made money, but we're cautious about Huntington Ingalls. Here are three reasons we avoid HII 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 put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Huntington Ingalls’s 5.9% annualized revenue growth over the last five years was tepid. This fell short of our benchmark for the industrials sector.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Huntington Ingalls’s revenue to rise by 3.4%, close to its 5.9% annualized growth for the past five years. This projection doesn't excite us and indicates its newer products and services will not lead to better top-line performance yet.
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Huntington Ingalls, its EPS declined by 2.1% annually over the last five years while its revenue grew by 5.9%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Huntington Ingalls doesn’t pass our quality test. After the recent rally, the stock trades at 23.2× forward P/E (or $400.25 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 stocks to buy right now. Let us point you toward our favorite semiconductor picks and shovels play.
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