What a fantastic six months it’s been for Keysight. Shares of the company have skyrocketed 44.8%, hitting $320.86. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Following the strength, is KEYS a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does KEYS Stock Spark Debate?
Spun off from Hewlett-Packard in 2014, Keysight (NYSE:KEYS) offers electronic measurement products for use in various sectors.
Two Things to Like:
1. Elite Gross Margin Powers Best-In-Class Business Model
For industrial businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.
Keysight has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 63.3% gross margin over the last five years. That means Keysight only paid its suppliers $36.68 for every $100 in revenue.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Keysight has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 21.2% over the last five years.
One Reason to Be Careful:
Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Keysight’s 5.6% annualized revenue growth over the last five years was tepid. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Keysight.
Final Judgment
Keysight’s positive characteristics outweigh the negatives, and after the recent rally, the stock trades at 29.4× forward P/E (or $320.86 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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