TTM Technologies has been on fire lately. In the past six months alone, the company’s stock price has rocketed 128%, setting a new 52-week high of $50.35 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy TTM Technologies, 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.
Why Is TTM Technologies Not Exciting?
We’re glad investors have benefited from the price increase, but we're swiping left on TTM Technologies for now. Here are three reasons there are better opportunities than TTMI and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, TTM Technologies grew its sales at a mediocre 4.4% compounded annual growth rate. This fell short of our benchmark for the business services sector.
2. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, TTM Technologies’s margin dropped by 6.1 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business. TTM Technologies’s free cash flow margin for the trailing 12 months was breakeven.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
TTM Technologies historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5%, somewhat low compared to the best business services companies that consistently pump out 25%+.
Final Judgment
TTM Technologies isn’t a terrible business, but it isn’t one of our picks. After the recent surge, the stock trades at 22.4× forward P/E (or $50.35 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a top digital advertising platform riding the creator economy.
Stocks We Would Buy Instead of TTM Technologies
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