Cadre’s 39.9% return over the past six months has outpaced the S&P 500 by 15.2%, and its stock price has climbed to $41.11 per share. This run-up might have investors contemplating their next move.
Is there a buying opportunity in Cadre, 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 Cadre Not Exciting?
Despite the momentum, we're swiping left on Cadre for now. Here are three reasons why CDRE doesn't excite us and a stock we'd rather own.
1. Shrinking Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Analyzing the trend in its profitability, Cadre’s operating margin decreased by 1.7 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 11%.
2. EPS Growth Has Stalled
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.
Cadre’s full-year EPS was flat over the last four years, worse than the broader industrials sector.
3. 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, Cadre’s margin dropped by 7 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Cadre’s free cash flow margin for the trailing 12 months was 5.8%.
Final Judgment
Cadre isn’t a terrible business, but it doesn’t pass our bar. With its shares beating the market recently, the stock trades at 28.4× forward P/E (or $41.11 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. Let us point you toward the Amazon and PayPal of Latin America.
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