Over the past six months, BWX has been a great trade. While the S&P 500 was flat, the stock price has climbed by 27.8% to $143 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy BWX, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is BWX Not Exciting?
We’re happy investors have made money, but we're swiping left on BWX for now. Here are three reasons why you should be careful with BWXT and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, BWX grew its sales at a mediocre 6.6% compounded annual growth rate. This was below our standard for the industrials sector. 
2. Shrinking Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Looking at the trend in its profitability, BWX’s operating margin decreased by 2.4 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 13.8%.
3. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
BWX’s EPS grew at a weak 3.6% compounded annual growth rate over the last five years, lower than its 6.6% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
BWX’s business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at 39.6× forward P/E (or $143 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 suggest looking at the most dominant software business in the world.
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