Over the last six months, Transcat’s shares have sunk to $106.44, producing a disappointing 10.4% loss - a stark contrast to the S&P 500’s 6.1% gain. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Following the pullback, is now the time to buy TRNS? Find out in our full research report, it’s free.

Why Does Transcat Spark Debate?

Serving the pharmaceutical, industrial manufacturing, energy, and chemical process industries, Transcat (NASDAQ:TRNS) provides measurement instruments and supplies.

Two Positive Attributes:

1. Long-Term Revenue Growth Shows Strong Momentum

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. Over the last five years, Transcat grew its sales at a solid 9.8% compounded annual growth rate. Its growth surpassed the average industrials company and shows its offerings resonate with customers.

2. Outstanding Long-Term EPS Growth

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Transcat’s EPS grew at a spectacular 15.6% compounded annual growth rate over the last five years, higher than its 9.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

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, Transcat’s margin dropped by 2.9 percentage points over the last five years. If its declines continue, it could signal higher capital intensity. Transcat’s free cash flow margin for the trailing 12 months was 6.3%.

Final Judgment

Transcat’s positive characteristics outweigh the negatives. After the recent drawdown, the stock trades at 36.9× forward price-to-earnings (or $106.44 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

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