Hillman’s stock performance has remained relatively flat over the past six months, generating a modest 1.4% return and hovering around $10.03 per share. This performance lags behind the S&P 500’s 6.6% gain during the same period. This begs the question: does Hillman present a viable investment opportunity, or is it a potential risk to your portfolio? Let’s delve into a comprehensive analysis of Hillman’s recent performance and explore why it might not be the most compelling investment option currently.
Table Content:
Hyperloop Capital Insights’ analysis suggests a cautious approach to Hillman. We outline three key reasons why we’re avoiding HLMN and propose an alternative investment opportunity with stronger potential.
Why Hillman Might Not Be the Right Investment
Founded upon the acquisition of a franchise operation by Max Hillman, Hillman (NASDAQ:HLMN) specializes in the design, manufacturing, and distribution of industrial equipment and systems across diverse sectors. However, a closer look reveals some underlying concerns.
1. Sluggish Long-Term Revenue Growth
Sustained revenue growth is a crucial indicator of a company’s overall health and future prospects. While short-term fluctuations can occur, consistent long-term growth is a hallmark of successful businesses. Over the past five years, Hillman’s revenue has grown at a compounded annual growth rate of just 3.9%. This figure falls short of the benchmark for the industrials sector, raising concerns about the company’s ability to compete effectively and capitalize on market opportunities.
2. Weak Free Cash Flow Margin Hinders Reinvestment
Free cash flow (FCF) is a critical metric for evaluating a company’s financial strength and its ability to reinvest in growth, return capital to shareholders, or weather economic downturns. Hillman’s FCF margin has averaged a meager 2.2% over the past five years. This subpar performance within the industrials sector suggests limited financial flexibility for strategic investments and future expansion. A healthy FCF margin is essential for long-term sustainability and value creation.
3. Unimpressive Return on Invested Capital
Return on invested capital (ROIC) measures a company’s efficiency in allocating capital to profitable investments. Hillman’s five-year average ROIC of 4.1% sits below the typical cost of capital for industrial companies. This indicates that Hillman has struggled to generate sufficient returns on its investments, potentially hindering future growth and profitability. A higher ROIC signifies effective management and strong investment decisions.
Conclusion: Exploring Alternative Investment Opportunities
While Hillman is not necessarily a failing company, its current performance and financial metrics do not present a compelling investment thesis. Trading at a forward price-to-earnings ratio of 18.4x, or $10.03 per share, the valuation appears reasonable but lacks a significant margin of safety. Hyperloop Capital Insights believes more promising investment opportunities exist in the current market. We recommend considering FTAI Aviation, an aerospace company poised to benefit from the challenges faced by industry giants Boeing and Airbus. Diversifying your portfolio with companies exhibiting stronger growth potential, robust free cash flow, and higher returns on invested capital is crucial for maximizing long-term investment returns. Contact Hyperloop Capital Insights to discuss tailored investment strategies aligned with your financial goals.
