NN trades at $3.38 and has moved in lockstep with the market. Its shares have returned 12.7% over the last six months while the S&P 500 has gained 8.8%.

Is now the time to buy NN, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

We're sitting this one out for now. Here are three reasons why NNBR doesn't excite us and a stock we'd rather own.

Why Do We Think NN Will Underperform?

Formerly known as Nuturn, NN (NASDAQ:NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, NN’s sales grew at a sluggish 2.9% compounded annual growth rate over the last four years. This was below our standards.

2. 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 typically prefer to invest in companies with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. NN’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.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

NN burned through $9.71 million of cash over the last year, and its $193.4 million of debt exceeds the $12.45 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the NN’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of NN until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of NN, we’ll be cheering from the sidelines. That said, the stock currently trades at 3.1× forward EV-to-EBITDA (or $3.38 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 FTAI Aviation, an aerospace company benefiting from Boeing and Airbus’s struggles.

Stocks We Would Buy Instead of NN

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