Over the past six months, Tennant’s stock price fell to $77.09. Shareholders have lost 9.2% of their capital, disappointing when considering the S&P 500 was flat. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Tennant, 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 Is Tennant Not Exciting?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why TNC doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall 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, Tennant grew its sales at a sluggish 2.3% compounded annual growth rate. This fell short of our benchmarks. 
2. Revenue Projections Show Stormy Skies Ahead
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 Tennant’s revenue to drop by 1%, a decrease from its 2.3% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will face some demand challenges.
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, Tennant’s margin dropped by 7.1 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. Tennant’s free cash flow margin for the trailing 12 months was 4.8%.
Final Judgment
Tennant isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 12.4× forward P/E (or $77.09 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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