The past six months have been a windfall for Sterling’s shareholders. The company’s stock price has jumped 181%, hitting $849.51 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now still a good time to buy STRL? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Are We Positive on Sterling?
Involved in the construction of a major highway, the Grand Parkway in Houston, TX, Sterling Infrastructure (NASDAQ:STRL) provides civil infrastructure construction.
1. Skyrocketing Revenue Shows Strong Momentum
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Sterling’s sales grew at an exceptional 14.8% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
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.
Sterling has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 15.6% over the last five years.
3. New Investments Bear Fruit as ROIC Jumps
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
Fortunately, Sterling’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.
Final Judgment
These are just a few reasons why we think Sterling is an elite industrials company, and after the recent surge, the stock trades at 44.7× forward P/E (or $849.51 per share). Is now a good time to buy despite the apparent froth? See for yourself in our comprehensive research report, it’s free.
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