What a brutal six months it’s been for Tetra Tech. The stock has dropped 31.3% and now trades at a new 52-week low of $30.97, rattling many shareholders. This may have investors wondering how to approach the situation.

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

Why Does Tetra Tech Spark Debate?

Originally founded to focus on Alaska’s oil pipelines, Tetra Tech (NASDAQ:TTEK) provides consulting and engineering services to the water and infrastructure industries.

Two Positive Attributes:

1. Surging Backlog Locks In Future Sales

We can better understand Air and Water Services companies by analyzing their backlog. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Tetra Tech’s future revenue streams.

Tetra Tech’s backlog punched in at $5.44 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 19.1%. This performance was fantastic and shows the company has a robust sales pipeline because it is accumulating more orders than it can fulfill. Its growth also suggests that customers are committing to Tetra Tech for the long term, enhancing the business’s predictability.

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.

Tetra Tech’s EPS grew at a spectacular 14.9% compounded annual growth rate over the last five years, higher than its 12.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

New Investments Fail to Bear Fruit as ROIC Declines

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. Unfortunately, Tetra Tech’s ROIC has decreased over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

Final Judgment

Tetra Tech has huge potential even though it has some open questions. With the recent decline, the stock trades at 21.3× forward price-to-earnings (or $30.97 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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