NN trades at $3.38 and has moved in lockstep with the market. Its shares have returned 12.7% over the last six months while the S&P 500 has gained 8.8%.
Is there a buying opportunity in NN, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.We're sitting this one out for now. Here are three reasons why NNBR doesn't excite us and a stock we'd rather own.
Why Do We Think NN Will Underperform?
Formerly known as Nuturn, NN (NASDAQ:NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, NN’s sales grew at a sluggish 2.9% compounded annual growth rate over the last four years. This was below our standards. 
2. 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. NN’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.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
NN burned through $9.71 million of cash over the last year, and its $193.4 million of debt exceeds the $12.45 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the NN’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of NN until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of NN, we’ll be cheering from the sidelines. That said, the stock currently trades at 3.1× forward EV-to-EBITDA (or $3.38 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d suggest looking at Google, whose cloud computing and YouTube divisions are firing on all cylinders.
Stocks We Would Buy Instead of NN
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,691% between September 2019 and September 2024) as well as under-the-radar businesses like Comfort Systems (+783% five-year return). Find your next big winner with StockStory today for free.
