Advanced Energy trades at $123.46 per share and has stayed right on track with the overall market, gaining 9.2% over the last six months. At the same time, the S&P 500 has returned 8.1%.
Is now the time to buy Advanced Energy, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
We're cautious about Advanced Energy. Here are three reasons why AEIS doesn't excite us and a stock we'd rather own.
Why Is Advanced Energy Not Exciting?
Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ:AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.
1. Revenue Tumbling Downwards
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Advanced Energy’s recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 8.3% over the last two years. 
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 Advanced Energy, its EPS declined by more than its revenue over the last two years, dropping 23%. 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 typically prefer to invest in companies with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. Advanced Energy’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
Advanced Energy’s business quality ultimately falls short of our standards. That said, the stock currently trades at 25.8× forward price-to-earnings (or $123.46 per share). This multiple tells us a lot of good news is priced in - you can find better investment opportunities elsewhere. We’d suggest looking at Microsoft, the most dominant software business in the world.
Stocks We Like More Than Advanced Energy
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