Pangaea currently trades at $5.19 per share and has shown little upside over the past six months, posting a small loss of 4.4%. The stock also fell short of the S&P 500’s 7.5% gain during that period.
Is there a buying opportunity in Pangaea, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Pangaea Will Underperform?
We're sitting this one out for now. Here are three reasons why we avoid PANL and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Pangaea grew its sales at a tepid 5.3% compounded annual growth rate. This fell short of our benchmark for the industrials sector. 
2. EPS Trending Down
We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Pangaea’s full-year EPS dropped 140%, or 33.9% annually, over the last three years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Pangaea’s low margin of safety could leave its stock price susceptible to large downswings.
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, Pangaea’s margin dropped by 9.1 percentage points over the last five years. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s becoming a more capital-intensive business. Pangaea’s free cash flow margin for the trailing 12 months was negative 3.1%.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Pangaea, we’ll be cheering from the sidelines. With its shares trailing the market in recent months, the stock trades at 9.3× forward P/E (or $5.19 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 a dominant Aerospace business that has perfected its M&A strategy.
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