What a brutal six months it’s been for Azenta. The stock has dropped 30.3% and now trades at $24, rattling many shareholders. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Azenta, 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 Azenta Will Underperform?
Even with the cheaper entry price, we’re cautious about Azenta. Here are three reasons why there are better opportunities than AZTA, plus one stock we’d rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Azenta struggled to consistently increase demand as its $596.3 million of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and signals it’s a low quality business.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Azenta, its EPS declined by 24.8% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.
3. Cash Burn Ignites Concerns
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.
Azenta’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 16.5%, meaning it lit $16.49 of cash on fire for every $100 in revenue.
Final Judgment
We see the value of companies making people healthier, but in the case of Azenta, we’re out. Following the recent decline, the stock trades at 38.9× forward P/E (or $24 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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