Over the past six months, Sterling’s shares (currently trading at $133.43) have posted a disappointing 8.6% loss while the S&P 500 was flat. This may have investors wondering how to approach the situation.
Following the drawdown, is this a buying opportunity for STRL? Find out in our full research report, it’s free.
Why Is Sterling a Good Business?
Involved in the construction of a major highway, the Grand Parkway in Houston, TX, Sterling Infrastructure (NASDAQ: STRL) provides civil infrastructure construction.
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, Sterling’s sales grew at an excellent 13.4% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers. 
2. Increasing Free Cash Flow Margin Juices Financials
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.
As you can see below, Sterling’s margin expanded by 13.5 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Sterling’s free cash flow margin for the trailing 12 months was 19.7%.
3. New Investments Bear Fruit as ROIC Jumps
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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. Over the last few years, Sterling’s ROIC has increased significantly. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.
Final Judgment
These are just a few reasons why Sterling ranks near the top of our list. With the recent decline, the stock trades at 20.6× forward price-to-earnings (or $133.43 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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