Over the past six months, ESAB has been a great trade, beating the S&P 500 by 21.7%. Its stock price has climbed to $117.62, representing a healthy 27.8% increase. 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 ESAB, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.Despite the momentum, we're sitting this one out for now. Here are three reasons why ESAB doesn't excite us and a stock we'd rather own.
Why Is ESAB Not Exciting?
Having played a significant role in the construction of the iconic Sydney Opera House, ESAB (NYSE:ESAB) manufactures and sells welding and cutting equipment for numerous industries.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, ESAB grew its sales at a tepid 4.7% compounded annual growth rate. This was below our standard for the industrials sector. 
2. Slow Organic Growth Suggests Waning Demand In Core Business
In addition to reported revenue, organic revenue is a useful data point for analyzing Professional Tools and Equipment companies. This metric gives visibility into ESAB’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, ESAB’s organic revenue averaged 4.8% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
3. EPS Barely Growing
We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
ESAB’s weak 3.9% annual EPS growth over the last three years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
Final Judgment
ESAB isn’t a terrible business, but it isn’t one of our picks. With its shares outperforming the market lately, the stock trades at 22.4× forward price-to-earnings (or $117.62 per share). This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there. Let us point you toward MercadoLibre, the Amazon and PayPal of Latin America.
Stocks We Like More Than ESAB
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