Hudson Technologies currently trades at $8.05 and has been a dream stock for shareholders. It’s returned 682% since July 2020, blowing past the S&P 500’s 92.4% gain. The company has also beaten the index over the past six months as its stock price is up 35.1% thanks to its solid quarterly results.

Is there a buying opportunity in Hudson Technologies, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Hudson Technologies Not Exciting?

We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons why HDSN doesn't excite us and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Hudson Technologies’s sales grew at a mediocre 6.8% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector.

2. EPS Took a Dip Over the Last Two Years

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for Hudson Technologies, its EPS declined by more than its revenue over the last two years, dropping 51.9%. This tells us the company struggled to adjust to shrinking demand.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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. Unfortunately, Hudson Technologies’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Hudson Technologies isn’t a terrible business, but it doesn’t pass our bar. With its shares topping the market in recent months, the stock trades at 10.5× forward EV-to-EBITDA (or $8.05 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Hudson Technologies

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