Over the past six months, Thermon has been a great trade, beating the S&P 500 by 23.8%. Its stock price has climbed to $38.48, representing a healthy 38.1% increase. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Thermon, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is Thermon Not Exciting?
We’re glad investors have benefited from the price increase, but we're swiping left on Thermon for now. Here are three reasons there are better opportunities than THR and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Thermon’s recent performance shows its demand has slowed as its annualized revenue growth of 3.5% over the last two years was below its five-year trend. 
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 Thermon’s revenue to rise by 4%, close to its 10.3% annualized growth for the past five years. This projection is underwhelming and suggests its newer products and services will not catalyze better top-line performance yet.
3. Recent EPS Growth Below Our Standards
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Thermon’s EPS grew at an unimpressive 5.6% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 3.5% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
Thermon isn’t a terrible business, but it doesn’t pass our quality test. With its shares outperforming the market lately, the stock trades at 19.1× forward P/E (or $38.48 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Would Buy Instead of Thermon
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