What a brutal six months it’s been for Limbach. The stock has dropped 46.3% and now trades at $73.75, rattling many shareholders. This may have investors wondering how to approach the situation.
Following the drawdown, is now an opportune time to buy LMB? Find out in our full research report, it’s free for active Edge members.
Why Does Limbach Spark Debate?
Established in 1901, Limbach (NASDAQ: LMB) provides integrated building systems solutions, including mechanical, electrical, and plumbing services.
Two Things to Like:
1. Outstanding Long-Term EPS Growth
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.
Limbach’s EPS grew at an astounding 35.8% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Limbach’s margin expanded by 8 percentage points over the last five years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Limbach’s free cash flow margin for the trailing 12 months was 5.3%.
One Reason to be Careful:
Long-Term Revenue Growth Flatter Than a Pancake
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Limbach struggled to consistently increase demand as its $603.6 million of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result, but there are still things to like about Limbach.
Final Judgment
Limbach’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 18.2× forward P/E (or $73.75 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
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