Greenbrier has had an impressive run over the past six months. While the S&P 500 has been flat, the stock has returned 7.7% and now trades at $53.45. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy Greenbrier, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Despite the momentum, we're sitting this one out for now. Here are three reasons why we avoid GBX and a stock we'd rather own.

Why Is Greenbrier Not Exciting?

Having designed the industry’s first double-decker railcar in the 1980s, Greenbrier (NYSE:GBX) supplies the freight rail transportation industry with railcars and related services.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Greenbrier’s 2.5% annualized revenue growth over the last five years was sluggish. This was below our standards.

2. Low Gross Margin Reveals Weak Structural Profitability

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

Greenbrier has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 13% gross margin over the last five years. Said differently, Greenbrier had to pay a chunky $86.95 to its suppliers for every $100 in revenue.

3. 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, Greenbrier’s margin dropped by 13.3 percentage points over the last five years. Almost any movement in the wrong direction is undesirable because it is already burning cash. If the trend continues, it could signal it’s becoming a more capital-intensive business. Greenbrier’s free cash flow margin for the trailing 12 months was negative 2.2%.

Final Judgment

Greenbrier isn’t a terrible business, but it doesn’t pass our bar. With its shares outperforming the market lately, the stock trades at 4.9× forward EV-to-EBITDA (or $53.45 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at one of our top software and edge computing picks.

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