What a fantastic six months it’s been for H&E Equipment Services. Shares of the company have skyrocketed 80.3%, hitting $92.63. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in H&E Equipment Services, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free .

We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons why we avoid HEES and a stock we'd rather own.

Why Do We Think H&E Equipment Services Will Underperform?

Founded after recognizing a growth trend along the Mississippi River and opportunities developing in the earthmoving and construction equipment business, H&E (NASDAQ:HEES) offers machinery for companies to purchase or rent.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, H&E Equipment Services grew its sales at a sluggish 2.4% compounded annual growth rate. This fell short of our benchmarks.

2. EPS Barely Growing

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

H&E Equipment Services’s EPS grew at an unimpressive 5.1% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 2.4% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

3. Free Cash Flow Margin Dropping

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.

As you can see below, H&E Equipment Services’s margin dropped by 18.4 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because of its relatively low cash conversion. If the longer-term trend returns, it could signal it’s becoming a more capital-intensive business. H&E Equipment Services’s free cash flow margin for the trailing 12 months was 12.8%.

Final Judgment

H&E Equipment Services doesn’t pass our quality test. Following the recent rally, the stock trades at 25.1× forward price-to-earnings (or $92.63 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now. We’d recommend looking at the most entrenched endpoint security platform on the market .

Stocks We Would Buy Instead of H&E Equipment Services

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