Trimble has been treading water for the past six months, recording a small loss of 1.9% while holding steady at $60.57. However, the stock is beating the S&P 500’s 7.8% decline during that period.
Is there a buying opportunity in Trimble, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free .
Even with the strong relative performance, we're swiping left on Trimble for now. Here are three reasons why there are better opportunities than TRMB and a stock we'd rather own.
Why Do We Think Trimble Will Underperform?
Playing a role in the construction of the Paris Grand, Trimble (NASDAQ:TRMB) offers geospatial devices and technology to the agriculture, construction, transportation, and logistics industries.
1. Slow Organic Growth Suggests Waning Demand In Core Business
In addition to reported revenue, organic revenue is a useful data point for analyzing Internet of Things companies. This metric gives visibility into Trimble’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Trimble’s organic revenue averaged 3.1% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.
2. Revenue Projections Show Stormy Skies Ahead
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 Trimble’s revenue to drop by 6.7%, a decrease from its flat sales for the past two years. This projection is underwhelming and suggests its products and services will face some demand challenges.
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, Trimble’s margin dropped by 6 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Trimble’s free cash flow margin for the trailing 12 months was 13.5%.
Final Judgment
Trimble doesn’t pass our quality test. Following its recent outperformance amid a softer market environment, the stock trades at 21.4× forward price-to-earnings (or $60.57 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at one of our top software and edge computing picks .
Stocks We Would Buy Instead of Trimble
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