Since July 2024, Helios has been in a holding pattern, posting a small loss of 2.8% while floating around $44.66. The stock also fell short of the S&P 500’s 10.3% gain during that period.
Is now the time to buy Helios, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
We're sitting this one out for now. Here are three reasons why we avoid HLIO and a stock we'd rather own.
Why Do We Think Helios Will Underperform?
Founded on the principle of treating others as one wants to be treated, Helios (NYSE:HLIO) designs, manufactures, and sells motion and electronic control components for various sectors.
1. Core Business Falling Behind as Demand Declines
In addition to reported revenue, organic revenue is a useful data point for analyzing Gas and Liquid Handling companies. This metric gives visibility into Helios’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Helios’s organic revenue averaged 5.6% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Helios might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Helios, its EPS declined by 2.7% annually over the last five years while its revenue grew by 7.6%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Helios’s margin dropped by 9.7 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal higher capital intensity. Helios’s free cash flow margin for the trailing 12 months was 11.2%.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Helios, we’ll be cheering from the sidelines. With its shares lagging the market recently, the stock trades at 15.9× forward price-to-earnings (or $44.66 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward one of our all-time favorite software stocks.
Stocks We Like More Than Helios
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