BWX (BWXT): Buy, Sell, or Hold Post Q2 Earnings?

BWX has been on fire lately. In the past six months alone, the company’s stock price has rocketed 91.2%, setting a new 52-week high of $198.99 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy BWX, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.

Why Is BWX Not Exciting?

We’re glad investors have benefited from the price increase, but we're swiping left on BWX for now. Here are three reasons why BWXT doesn't excite us 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. Regrettably, BWX’s sales grew at a mediocre 6.9% compounded annual growth rate over the last five years. This was below our standard for the industrials sector.

2. 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.

Looking at the trend in its profitability, BWX’s operating margin decreased by 2.3 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 13.5%.

3. EPS Barely Growing

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

BWX’s EPS grew at an unimpressive 4.2% compounded annual growth rate over the last five years, lower than its 6.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

BWX isn’t a terrible business, but it doesn’t pass our bar. Following the recent surge, the stock trades at 53.7× forward P/E (or $198.99 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

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