Kirby has had an impressive run over the past six months as its shares have beaten the S&P 500 by 17.5%. The stock now trades at $139.54, marking a 24.5% gain. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now still a good time to buy KEX? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Does Kirby Spark Debate?
Transporting goods along all U.S. coasts, Kirby (NYSE: KEX) provides inland and coastal marine transportation services.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Kirby’s sales grew at an impressive 11.1% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers.
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, Kirby’s margin expanded by 8.9 percentage points over the last five years. This is encouraging because it gives the company more optionality. Kirby’s free cash flow margin for the trailing 12 months was 14.5%.
One Reason to Be Careful:
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).
Although Kirby has shown solid fundamentals lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.2%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.
Final Judgment
Kirby’s merits more than compensate for its flaws, and with its shares outperforming the market lately, the stock trades at 19.9× forward P/E (or $139.54 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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