3 Reasons HLIO is Risky and 1 Stock to Buy Instead

Over the past six months, Helios has been a great trade, beating the S&P 500 by 22.4%. Its stock price has climbed to $68.79, representing a healthy 27% increase. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Helios, 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 Helios Will Underperform?

We’re happy investors have made money, but we're swiping left on Helios for now. Here are three reasons we avoid HLIO and a stock we'd rather own.

1. Core Business Falling Behind as Demand Plateaus

In addition to reported revenue, organic revenue is a useful data point for analyzing Gas and Liquid Handling companies. This metric gives visibility into Helios’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, Helios failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Helios might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. Shrinking Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Analyzing the trend in its profitability, Helios’s operating margin decreased by 9.3 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 7.9%.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Helios’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

We see the value of companies helping their customers, but in the case of Helios, we’re out. With its shares topping the market in recent months, the stock trades at 24.1× forward P/E (or $68.79 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 recommend looking at the Amazon and PayPal of Latin America.

Stocks We Would Buy Instead of Helios

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