Orion (ORN): Buy, Sell, or Hold Post Q3 Earnings?

Orion has had an impressive run over the past six months as its shares have beaten the S&P 500 by 6.5%. The stock now trades at $10.30, marking a 20.6% gain. 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 Orion, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.

Why Do We Think Orion Will Underperform?

Despite the momentum, we don't have much confidence in Orion. Here are three reasons you should be careful with ORN and a stock we'd rather own.

1. Backlog Declines as Orders Drop

We can better understand Construction and Maintenance Services companies by analyzing their backlog. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Orion’s future revenue streams.

Orion’s backlog came in at $679 million in the latest quarter, and it averaged 1.7% year-on-year declines over the last two years. This performance was underwhelming and shows the company is not winning new orders. It also suggests there may be increasing competition or market saturation.

2. EPS Trending Down

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

Sadly for Orion, its EPS declined by 3.8% annually over the last five years while its revenue grew by 2.5%. This tells us the company became less profitable on a per-share basis as it expanded.

3. Breakeven Free Cash Flow Limits Reinvestment Potential

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.

Orion broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Final Judgment

Orion doesn’t pass our quality test. With its shares beating the market recently, the stock trades at 39.1× forward P/E (or $10.30 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at a dominant Aerospace business that has perfected its M&A strategy.

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