Over the last six months, EnerSys’s shares have sunk to $86.28, producing a disappointing 6.9% loss - a stark contrast to the S&P 500’s 2.8% gain. This may have investors wondering how to approach the situation.
Is now the time to buy EnerSys, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is EnerSys Not Exciting?
Even though the stock has become cheaper, we're cautious about EnerSys. Here are three reasons why ENS doesn't excite us and a stock we'd rather own.
1. Demand Slipping as Sales Volumes Decline
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Renewable Energy company because there’s a ceiling to what customers will pay.
Over the last two years, EnerSys’s units sold averaged 3.6% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests EnerSys might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect EnerSys’s revenue to rise by 1.6%. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, EnerSys’s margin dropped by 5.8 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business. EnerSys’s free cash flow margin for the trailing 12 months was 3.9%.
Final Judgment
EnerSys isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 8.4× forward P/E (or $86.28 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
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