Leidos’s stock price has taken a beating over the past six months, shedding 23.2% of its value and falling to $128.55 per share. This may have investors wondering how to approach the situation.
Following the pullback, is now a good time to buy LDOS? Find out in our full research report, it’s free.
Why Does Leidos Spark Debate?
Formed through the split of IT services company SAIC, Leidos (NYSE: LDOS) offers technology and engineering solutions such as military training systems for the defense, civil, and health markets.
Two Things to Like:
1. Surging Backlog Locks In Future Sales
We can better understand Defense Contractors companies by analyzing their backlog. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Leidos’s future revenue streams.
Leidos’s backlog punched in at $48.71 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 15.9%. This performance was fantastic and shows the company has a robust sales pipeline because it is accumulating more orders than it can fulfill. Its growth also suggests that customers are committing to Leidos for the long term, enhancing the business’s predictability. 
2. Increasing Free Cash Flow Margin Juices Financials
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.
As you can see below, Leidos’s margin expanded by 6.5 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Leidos’s free cash flow margin for the trailing 12 months was 12.3%.
One Reason to Be Careful:
Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Leidos’s 5.9% annualized revenue growth over the last five years was tepid. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Leidos.
Final Judgment
Leidos’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 10.7× forward P/E (or $128.55 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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