Since February 2021, the S&P 500 has delivered a total return of 76.6%. But one standout stock has more than doubled the market - over the past five years, Standex has surged 166% to $259.11 per share. Its momentum hasn’t stopped as it’s also gained 23.7% in the last six months, beating the S&P by 17.2%.
Is it too late to buy SXI? Find out in our full research report, it’s free.
Why Does Standex Spark Debate?
Holding over 500 patents globally, Standex (NYSE: SXI) is a manufacturer and distributor of industrial components for various sectors.
Two Things to Like:
1. Operating Margin Reveals a Well-Run Organization
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Standex has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
2. 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.
Standex’s EPS grew at an astounding 18.1% compounded annual growth rate over the last five years, higher than its 7.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Free Cash Flow Margin Dropping
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, Standex’s margin dropped by 3.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Standex’s free cash flow margin for the trailing 12 months was 5.9%.
Final Judgment
Standex’s merits more than compensate for its flaws, and with its shares outperforming the market lately, the stock trades at 27.4× forward P/E (or $259.11 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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