Shareholders of Orion would probably like to forget the past six months even happened. The stock dropped 28.9% and now trades at $7.28. This may have investors wondering how to approach the situation.
Is now the time to buy Orion, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Despite the more favorable entry price, we're swiping left on Orion for now. Here are three reasons why there are better opportunities than ORN and a stock we'd rather own.
Why Do We Think Orion Will Underperform?
Established in 1994, Orion (NYSE:ORN) provides construction services for marine infrastructure and industrial projects.
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 five years, Orion grew its sales at a tepid 5.1% compounded annual growth rate. This fell short of our benchmark for the industrials sector. 
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Orion’s earnings losses deepened over the last five years as its EPS dropped 19.1% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Orion’s low margin of safety could leave its stock price susceptible to large downswings.
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. Unfortunately, Orion’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Orion falls short of our quality standards. After the recent drawdown, the stock trades at 22× forward price-to-earnings (or $7.28 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better stocks to buy right now. We’d suggest looking at Costco, one of Charlie Munger’s all-time favorite businesses.
Stocks We Would Buy Instead of Orion
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