Even if they go mostly unnoticed, industrial businesses are the backbone of our country. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 24% for the sector - higher than the S&P 500’s 15.5% return.

Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. Taking that into account, here are three industrials stocks we’re passing on.

Atkore (ATKR)

Market Cap: $1.99 billion

Protecting the things that power our world, Atkore (NYSE: ATKR) designs and manufactures electrical safety products.

Why Do We Avoid ATKR?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Free cash flow margin dropped by 5.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Atkore is trading at $59.27 per share, or 9.6x forward P/E. Read our free research report to see why you should think twice about including ATKR in your portfolio.

3D Systems (DDD)

Market Cap: $271.9 million

Founded by the inventor of stereolithography, 3D Systems (NYSE: DDD) engineers, manufactures, and sells 3D printers and other related products to the aerospace, automotive, healthcare, and consumer goods industries.

Why Should You Dump DDD?

1. Annual sales declines of 6.3% for the past five years show its products and services struggled to connect with the market during this cycle
2. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $2.12 per share, 3D Systems trades at 1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than DDD.

First Solar (FSLR)

Market Cap: $22 billion

Headquartered in Arizona, First Solar (NASDAQ: FSLR) specializes in manufacturing solar panels and providing photovoltaic solar energy solutions.

Why Do We Think Twice About FSLR?

1. Sales trends were unexciting over the last five years as its 6.8% annual growth was below the typical industrials company
2. Free cash flow margin shrank by 18.9 percentage points over the last five years, suggesting the company stepped up its investments to maintain its competitive edge
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

First Solar’s stock price of $205.23 implies a valuation ratio of 10.4x forward P/E. To fully understand why you should be careful with FSLR, check out our full research report (it’s free).

Stocks We Like More

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