What a fantastic six months it’s been for Littelfuse. Shares of the company have skyrocketed 55.4%, hitting $258.90. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Littelfuse, 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 for active Edge members.
Why Is Littelfuse Not Exciting?
We’re happy investors have made money, but we're cautious about Littelfuse. Here are three reasons you should be careful with LFUS and a stock we'd rather own.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Littelfuse’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.7% over the last two years. Littelfuse isn’t alone in its struggles as the Electronic Components industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time. 
2. EPS Took a Dip Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Sadly for Littelfuse, its EPS declined by more than its revenue over the last two years, dropping 17.5%. This tells us the company struggled to adjust to shrinking demand.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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, Littelfuse’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Littelfuse isn’t a terrible business, but it isn’t one of our picks. Following the recent surge, the stock trades at 22.4× forward P/E (or $258.90 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Would Buy Instead of Littelfuse
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