What a time it’s been for TechnipFMC. In the past six months alone, the company’s stock price has increased by a massive 76.6%, reaching $72.29 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in TechnipFMC, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is TechnipFMC Not Exciting?
We’re happy investors have made money, but we're cautious about TechnipFMC. Here are two reasons why FTI doesn't excite us and a stock we'd rather own.
1. Revenue Spiraling Downwards
A company’s long-term performance can give signals about its business quality. Even a bad business, especially in a cyclical industry, can shine for a year or so, but a top-tier one should exhibit resilience through cycles. TechnipFMC struggled to consistently generate demand over the last five years as its sales dropped at a 5.3% annual rate. This was below our standards and signals it’s a lower quality business.
2. Low Gross Margin Reveals Weak Structural Profitability
In a single quarter or year, gross margins in the sector can swing wildly due to commodity prices, hedging, or changes in labor costs. Over a multi-year period across different points in the cycle, gross margin differences can signal whether a company is a structurally-advantaged producer (“rock” quality, takeaway, operating costs) or not.
TechnipFMC, which averaged 17.5% gross margin over the last five years, exhibiting bottom-tier unit economics in the sector. It means the company will struggle at higher commodity prices than peers with better gross margins. 
Final Judgment
TechnipFMC isn’t a terrible business, but it isn’t one of our picks. After the recent rally, the stock trades at 24.6× forward P/E (or $72.29 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d recommend looking at the Amazon and PayPal of Latin America.
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