Over the last six months, Littelfuse’s shares have sunk to $216.46, producing a disappointing 9.6% loss while the S&P 500 was flat. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Littelfuse, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Littelfuse Will Underperform?
Even though the stock has become cheaper, we don't have much confidence in Littelfuse. Here are three reasons why we avoid LFUS and a stock we'd rather own.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Littelfuse’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 6% over the last two years. Littelfuse isn’t alone in its struggles as the Electronic Components industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time. 
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Littelfuse’s EPS grew at an unimpressive 7.8% compounded annual growth rate over the last five years, lower than its 8.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
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 like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Littelfuse’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Littelfuse falls short of our quality standards. After the recent drawdown, the stock trades at 22.2× forward P/E (or $216.46 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at our favorite semiconductor picks and shovels play.
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