Flowserve has been treading water for the past six months, holding steady at $73.51. The stock also fell short of the S&P 500’s 6.9% gain during that period.
Is now the time to buy Flowserve, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Flowserve Not Exciting?
We’re cautious about Flowserve. Here are three reasons we avoid FLS, plus one stock we’d rather own.
1. Weak Backlog Growth Points to Soft Demand
Investors interested in Gas and Liquid Handling companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Flowserve’s future revenue streams.
Flowserve’s backlog came in at $2.95 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 5.1%. This performance was underwhelming and suggests that increasing competition is causing challenges in winning new orders. 
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 Flowserve’s revenue to rise by 7.3%. While this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
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.
Flowserve has shown mediocre cash profitability relative to peers over the last five years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 4.9%, below what we’d expect for an industrials business.
Final Judgment
Flowserve isn’t a terrible business, but it doesn’t pass our bar. With its shares trailing the market in recent months, the stock trades at 18.3× forward P/E (or $73.51 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a dominant aerospace business that has perfected its M&A strategy.
Stocks We Would Buy Instead of Flowserve
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