This year, the industrial sector is expected to grapple with various challenges, including growing macroeconomic concerns and supply chain issues, which could limit the sector’s growth momentum. In this article, we'll delve into the fundamentals of industrial stocks Xometry, Inc. (XMTR), Hydrofarm Holdings Group, Inc. (HYFM), and Ideal Power Inc. (IPWR) and explore why investors are looking to divest.
First, let's analyze the industrial sector’s current state.
Decades of underinvestment in plants, equipment, and workforce have taken a toll on manufacturing, rendering the industrial sector vulnerable. The past years have further highlighted the challenges, with increased trade and geopolitical tensions between China and the West and unprecedented disruptions caused by pandemic-related supply problems.
Furthermore, supply chain issues will likely continue to plague the industrial sector in 2023. According to KMPG, various macroeconomic and geopolitical issues will persist this year, including ongoing geopolitical instability, inflationary pressures, a recessionary environment, and climate change. They all could result in supply delays, inventory shortages, and increased costs, affecting the sector’s profitability.
As manufacturers have been affected by weakened demand, high borrowing costs, continued labor shortages, and supply chain constraints, production at U.S. factories fell more than expected in March. The Federal Reserve reported that manufacturing output dropped by 0.5% in March and was 1.1% below the prior-year level.
Let’s discuss why investors are eager to avoid struggling industrial stocks XMTR, HYFM, and IPWR.
Xometry, Inc. (XMTR)
XMTR runs an online marketplace that lets buyers source parts and assemblies globally. Its offerings include computer numerical control manufacturing, 3D printing, and more. The company serves the defense, aerospace, healthcare, consumer goods, robotics, government, education, automotive, and industrial sectors.
XMTR’s trailing-12-month EBITDA margin of negative 16.47% is significantly lower than the 13.21% industry average. Likewise, its trailing-12-month net income and levered FCF margins of negative 19.95% and 12.83% compare to the respective industry averages of 6.63% and 4.31%.
For the fourth quarter that ended December 31, 2022, XMTR’s adjusted EBITDA loss widened 20.2% year-over-year to $14.25 million. Its non-GAAP net loss worsened by 20.3% from the year-ago value to $13.73 million, while its non-GAAP EPS stood at $0.29, down 16% year-over-year.
Also, as of December 31, 2022, the company’s total liabilities stood at $362.09 million, compared to $77.10 million as of December 31, 2021.
Analysts expect the company’s loss per share to come in at $0.23 for the first quarter that ended March 2023. The company’s loss per share for the quarter (ending June 2023) is expected to come in at $0.15. Over the past six months, the stock has slumped 71.1% to close the last trading session at $15.52.
XMTR’s weak fundamentals are reflected in its POWR Ratings. It has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock also has a D grade for Stability, Quality, Momentum, and Sentiment. It is ranked #75 out of 78 stocks within the Industrial – Machinery industry.
Click here to see the other ratings of XMTR for Value and Growth.
Hydrofarm Holdings Group, Inc. (HYFM)
HYFM manufactures and distributes equipment and supplies for Controlled Environment Agriculture (CEA). Its products include agricultural lighting, indoor climate control devices, nutrients, and plant additives that enable the growth and cultivation of cannabis, flowers, fruits, vegetables, grains, and herbs in controlled environments.
The stock’s trailing-12-month gross profit margin of 10.68% is 64.3% lower than the 29.94% industry average. Moreover, its trailing-12-month CAPEX/Sales of 2.39% is 16.3% lower than the 2.85% industry average, while its trailing-12-month asset turnover ratio of 0.47x compares to the industry average of 0.80x.
For the fiscal fourth quarter that ended December 21, 2022, HYFM’s adjusted gross profit decreased 61.2% year-over-year to $9.03 million. Its adjusted EBITDA loss stood at $8.38 million, compared to an income of $4.92 million in the prior year’s period. Additionally, the company’s adjusted net loss and loss per share worsened significantly year-over-year to $20.47 million and $0.45, respectively.
For the fiscal year (ending December 2023), analysts expect HYFM’s loss per share to come in at $0.77. The company’s revenue for the same year is expected to decrease 14.3% year-over-year to $295.22 million. Shares of HYFM have plunged 31.7% over the past six months and 86% over the past year to close the last trading session at $1.66.
HYFM’s bleak outlook is reflected in its overall F rating, equating to a Strong Sell in our POWR Ratings system. It has a D grade for Quality, Stability, and Sentiment. The stock is ranked #76 out of 78 stocks in the Industrial – Machinery industry.
Click here to access HYFM’s rating for Value, Growth, and Momentum.
Ideal Power Inc. (IPWR)
IPWR develops and commercializes bidirectional bipolar junction transistor solid-state switch technology. Its SymCool Power Module caters to low conduction loss requirements of the solid-state circuit breaker market. The company serves electric and hybrid vehicles, electric vehicle charging, industrial motor drives, and military markets.
IPWR’s trailing-12-month asset turnover ratio of 0.01x is 99% lower than the 0.80x industry average. Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of negative 34.19%, 21.52%, and 37.06% compare to the respective industry averages of 13.83%, 7.05%, and 5.20%.
During the fiscal fourth quarter that ended December 31, 2022, IPWR’s total operating expenses increased 40.6% year-over-year to $1.99 million. Its net loss worsened by 33.1% year-over-year to $1.89 million, while the loss per share widened 34.8% from the year-ago value to $0.31.
In addition, as of December 31, 2022, the company’s total assets stood at $19.40 million, compared to $25.88 million as of December 31, 2021.
For the first quarter that ended March 2023, the company’s loss per share is expected to come in at $0.35. The consensus revenue estimate of $100 thousand for the same quarter reflects a 20% decrease year-over-year. Moreover, the company missed the consensus revenue estimates in three of the trailing four quarters, which is disappointing.
The stock has plunged 4.9% over the past month to close its last trading session at $10.41.
IPWR’s POWR Ratings reflect this poor outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. It has an F grade for Value and Quality and a D for Growth. It is ranked #77 out of 78 stocks within the same industry.
In addition to the POWR Ratings I’ve highlighted, you can see IPWR’s ratings for Stability, Sentiment, and Momentum here.
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XMTR shares were trading at $15.53 per share on Tuesday afternoon, up $0.01 (+0.06%). Year-to-date, XMTR has declined -51.82%, versus a 8.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
3 Industrial Stocks Investors Are Eager to Get Rid Of StockNews.com
