Trinity currently trades at $29.55 per share and has shown little upside over the past six months, posting a small loss of 3.5%. The stock also fell short of the S&P 500’s 3.8% gain during that period.

Is there a buying opportunity in Trinity, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

We're cautious about Trinity. Here are three reasons why there are better opportunities than TRN and a stock we'd rather own.

Why Is Trinity Not Exciting?

Operating under the trade name TrinityRail, Trinity (NYSE:TRN) is a provider of railcar products and services in North America.

1. Long-Term Revenue Growth Flatter Than a Pancake

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Trinity struggled to consistently increase demand as its $3.08 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. Cash Burn Ignites Concerns

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.

Trinity’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 12.6%, meaning it lit $12.57 of cash on fire for every $100 in revenue. This is a stark contrast from its operating margin, and its investments in working capital/capital expenditures are the primary culprit.

Final Judgment

Trinity isn’t a terrible business, but it doesn’t pass our bar. With its shares trailing the market in recent months, the stock trades at 18.1× forward price-to-earnings (or $29.55 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.

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