Over the past six months, Trimble’s shares (currently trading at $57.27) have posted a disappointing 15% loss, well below the S&P 500’s 12.9% gain. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Trimble, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Trimble Not Exciting?
Even with the cheaper entry price, we don’t have much confidence in Trimble. Here are three reasons why TRMB doesn’t excite us, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Trimble grew its sales at a sluggish 1.8% compounded annual growth rate. This fell short of our benchmarks.
2. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Trimble’s EPS grew at 6% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 1.8% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
3. Previous Growth Initiatives Haven’t Impressed
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).
Trimble historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.1%, somewhat low compared to the best industrials companies that consistently pump out 20%+.
Final Judgment
Trimble isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 14.5× forward P/E (or $57.27 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re pretty confident there are superior stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.
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