Ingersoll Rand has been treading water for the past six months, recording a small loss of 4.9% while holding steady at $70.12. The stock also fell short of the S&P 500’s 11.6% gain during that period.
Is there a buying opportunity in Ingersoll Rand, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Ingersoll Rand Not Exciting?
We're cautious about Ingersoll Rand. Here are three reasons you should be careful with IR and a stock we'd rather own.
1. Core Business Falling Behind as Demand Declines
We can better understand Gas and Liquid Handling companies by analyzing their organic revenue. This metric gives visibility into Ingersoll Rand’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Ingersoll Rand’s organic revenue averaged 1.4% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Ingersoll Rand might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Ingersoll Rand’s revenue to rise by 3.2%, a slight deceleration versus its 8.2% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will see some demand headwinds.
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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Ingersoll Rand 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
Ingersoll Rand isn’t a terrible business, but it doesn’t pass our quality test. With its shares lagging the market recently, the stock trades at 19.9× forward P/E (or $70.12 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.
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