Hillenbrand (HI): Buy, Sell, or Hold Post Q1 Earnings?

What a brutal six months it’s been for Hillenbrand. The stock has dropped 35.9% and now trades at $22.66, rattling many shareholders. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in Hillenbrand, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think Hillenbrand Will Underperform?

Even with the cheaper entry price, we're cautious about Hillenbrand. Here are three reasons why we avoid HI and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Hillenbrand’s 7.2% annualized revenue growth over the last five years was mediocre. This was below our standard for the industrials sector.

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.

Hillenbrand’s EPS grew at a weak 3.9% compounded annual growth rate over the last five years, lower than its 7.2% annualized revenue growth. This tells us the company became less 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, Hillenbrand’s margin dropped by 14.7 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. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. Hillenbrand’s free cash flow margin for the trailing 12 months was 5%.

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Hillenbrand, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 8.5× forward P/E (or $22.66 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d suggest looking at one of our top software and edge computing picks.

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