Should You Invest In Fluor Corp After Its Impressive Gains?

by Trefis Team
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The stock of Fluor Corp (NYSE:FLR), an engineering, procurement, construction and maintenance company, is up 22% in the past one month. Compared to this, the S&P 500 moved up only 0.5%. This strong outperformance stemmed from new contract wins, management change, and expectation of infrastructure demand regardless of who won the presidential election. The important thing to understand is – can this momentum be carried forward? Because that would mean that Fluor Corp’s stock can be invested in right now. We look at 3 key perspectives – past stock behavior, relative valuation, and the trends in the underlying financials – and conclude that this momentum may not last long.

Past stock behavior: Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period. While recent momentum has been strong, the chances of Fluor’s stock rising another 10% over the next 3 months are relatively small at 23%. Compared to this, the chances of dropping -10% are significantly higher at 36%, making the stock 1.5x more likely to fall than rise for a 10% amount in 3 months. That’s a little unexpected, but that’s how the stock has behaved, on average, in the past. Our detailed dashboard highlights the chances of Fluor’ stock rising or falling and should help you understand near-term return probabilities for different levels of movements.

Our assessment of fundamental metrics concurs with the machine learning engine output, suggesting that Fluor Corp may not yet be the best investment despite its recent gains. Our dashboard Big Movers: Fluor Has Climbed 24% In A Month – What Comes Next? lays this out.

Relative valuation: Fluor’s stock price decreased -33% this year, from $18.88 to $12.65, before moving 6.72% last week, and ending at $13.50. At the beginning of this year, Fluor’s trailing 12 month P/S ratio was 0.19. This figure has now declined to 0.11. Never in the last 10 years has the company seen its P/S multiple fall to such a level. What does this mean? One way to look at this is that the valuation may have bottomed out. But we warrant caution with that perspective as the underlying trends suggest that there is a reason, other than Covid-19, for the valuation decline.

Underlying financial trends: Fluor’s stock price has decreased -63% between 2017 and 2019, and has decreased -73% between 2017 and now. There was visible weakness in the financials before the pandemic hit. Fluor’s revenue had decreased -3.1% from $14,807 Mil in 2017 to $14,348 Mil in 2019. Its margins were suffering too. Fluor could barely net 1.5% of revenue as margin in 2017 and 2018, and this figure plummeted to -10.8% as a result of a slight decline in revenue. This suggests that Fluor’s thin margins are highly susceptible to topline fluctuations.

Taking all perspectives together, we believe that Fluor may not be the best investment right now. We can offer you something else instead. Check out our high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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