3 Reasons to Sell TRMB and 1 Stock to Buy Instead

Trimble trades at $79.09 and has moved in lockstep with the market. Its shares have returned 9% over the last six months while the S&P 500 has gained 5.3%.

Is now the time to buy Trimble, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Trimble Will Underperform?

We're cautious about Trimble. Here are three reasons why you should be careful with TRMB and a stock we'd rather own.

1. Slow Organic Growth Suggests Waning Demand In Core Business

Investors interested in Internet of Things companies should track organic revenue in addition to reported revenue. This metric gives visibility into Trimble’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Trimble’s organic revenue averaged 3.9% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Trimble’s revenue to drop by 2.5%, a decrease from its 1.9% annualized growth for the past five years. This projection is underwhelming and implies its products and services will face some demand challenges.

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, Trimble’s margin dropped by 9.6 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Trimble’s free cash flow margin for the trailing 12 months was 11.8%.

Final Judgment

Trimble falls short of our quality standards. That said, the stock currently trades at 26.3× forward P/E (or $79.09 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.

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