Over the past six months, Apogee has been a great trade, beating the S&P 500 by 8.4%. Its stock price has climbed to $72.34, representing a healthy 17.2% increase. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Apogee, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

We’re happy investors have made money, but we're swiping left on Apogee for now. Here are three reasons why we avoid APOG and a stock we'd rather own.

Why Is Apogee Not Exciting?

Involved in the design of the Apple Store on Fifth Avenue in New York City, Apogee (NASDAQ:APOG) sells architectural products and services such as high-performance glass for commercial buildings.

1. Long-Term Revenue Growth Flatter Than a Pancake

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. Unfortunately, Apogee struggled to consistently increase demand as its $1.38 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and signals it’s a lower quality business.

2. Low Gross Margin Reveals Weak Structural Profitability

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Apogee has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 24.1% gross margin over the last five years. Said differently, Apogee had to pay a chunky $75.94 to its suppliers for every $100 in revenue.

3. Projected Revenue Growth Is Slim

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 Apogee’s revenue to rise by 2.3%. While this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

Final Judgment

Apogee’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 16× forward price-to-earnings (or $72.34 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at Chipotle, which surprisingly still has a long runway for growth.

Stocks We Would Buy Instead of Apogee

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Put yourself in the driver’s seat by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

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