The past six months have been a windfall for Astronics’s shareholders. The company’s stock price has jumped 79.2%, hitting $72.52 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Following the strength, is ATRO a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Are We Positive On ATRO?
Integrating power outlets into many Boeing aircraft, Astronics (NASDAQ: ATRO) is a provider of technologies and services to the global aerospace, defense, and electronics industries.
1. Strong Backlog Ensures Robust Sales Pipeline
In addition to reported revenue, backlog is a useful data point for analyzing Aerospace companies. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Astronics’s future revenue streams.
Astronics’s backlog punched in at $674.5 million in the latest quarter, and over the last two years, its year-on-year growth averaged 9.1%. This performance was solid and shows the company is accumulating more orders than it can fulfill. Its growth also suggests that customers are committing to Astronics for the long term, enhancing the business’s predictability. 
2. Increasing Free Cash Flow Margin Juices Financials
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Astronics’s margin expanded by 7.6 percentage points over the last five years. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality. Astronics’s free cash flow margin for the trailing 12 months was 5%.
3. New Investments Bear Fruit as ROIC Jumps
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. Over the last few years, Astronics’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.
Final Judgment
These are just a few reasons why we're bullish on Astronics, and with the recent surge, the stock trades at 28.2× forward P/E (or $72.52 per share). Is now a good time to buy despite the apparent froth? See for yourself in our full research report, it’s free.
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