Over the past six months, Kirby’s stock price fell to $99.62. Shareholders have lost 7.5% of their capital, which is disappointing considering the S&P 500 has climbed by 5.3%. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Kirby, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Kirby Not Exciting?
Even with the cheaper entry price, we're cautious about Kirby. Here are three reasons why you should be careful with KEX and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of 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, Kirby grew its sales at a tepid 5.5% compounded annual growth rate. This fell short of our benchmark for the industrials 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, Kirby’s margin dropped by 7 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Kirby’s free cash flow margin for the trailing 12 months was 8%.
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).
Kirby historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.2%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.
Final Judgment
Kirby’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 14.3× forward P/E (or $99.62 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better investments elsewhere. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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