2 Reasons to Like VSEC and 1 to Stay Skeptical

VSE Corporation has been on fire lately. In the past six months alone, the company’s stock price has rocketed 67.3%, setting a new 52-week high of $217.91 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is it too late to buy VSEC? Find out in our full research report, it’s free.

Why Does VSEC Stock Spark Debate?

With roots dating back to 1959 and a strategic focus on extending the life of transportation assets, VSE Corporation (NASDAQ:VSEC) provides aftermarket parts distribution and maintenance, repair, and overhaul services for aircraft and vehicle fleets in commercial and government markets.

Two Positive Attributes:

1. Long-Term Revenue Growth Shows Strong Momentum

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, VSE Corporation’s sales grew at a solid 9.4% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers.

2. Operating Margin Rising, Profits Up

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

VSE Corporation’s operating margin rose by 4.3 percentage points over the last five years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 7.6%.

One Reason to be Careful:

Cash Burn Ignites Concerns

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.

While VSE Corporation posted positive free cash flow this quarter, the broader story hasn’t been so clean. VSE Corporation’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 3.4%, meaning it lit $3.40 of cash on fire for every $100 in revenue.

Final Judgment

VSE Corporation’s merits more than compensate for its flaws, and with the recent rally, the stock trades at 53.1× forward P/E (or $217.91 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.

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