Vishay Precision has had an impressive run over the past six months as its shares have beaten the S&P 500 by 17.6%. The stock now trades at $32.05, marking a 36.3% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in Vishay Precision, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Do We Think Vishay Precision Will Underperform?

Despite the momentum, we don't have much confidence in Vishay Precision. Here are three reasons we avoid VPG and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into 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, Vishay Precision grew its sales at a sluggish 2.3% compounded annual growth rate. This was below our standards.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Vishay Precision, its EPS declined by 17.4% annually over the last five years while its revenue grew by 2.3%. 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. Unfortunately, Vishay Precision’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.

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Vishay Precision, we’ll be cheering from the sidelines. With its shares outperforming the market lately, the stock trades at 31.4× forward P/E (or $32.05 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. We’d suggest looking at one of our top software and edge computing picks.

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