Over the last six months, Global Industrial’s shares have sunk to $28.36, producing a disappointing 18.6% loss - a stark contrast to the S&P 500’s 13.4% gain. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Global Industrial, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.Despite the more favorable entry price, we're swiping left on Global Industrial for now. Here are three reasons why you should be careful with GIC and one stock we like more.
Why Is Global Industrial Not Exciting?
Formerly known as Systemax, Global Industrial (NYSE:GIC) distributes industrial and commercial products to businesses and institutions.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Global Industrial’s sales grew at a mediocre 7.2% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector. 
2. EPS Is Barely Growing
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.
Global Industrial’s EPS grew at an unimpressive 4.9% compounded annual growth rate over the last five years, lower than its 7.2% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. 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 typically prefer to invest in companies with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. Global Industrial’s ROIC has decreased significantly over the last few years. We like what management has done in the past but are concerned its ROIC is declining, perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Global Industrial isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 13.4x forward price-to-earnings (or $28.36 per share). This valuation could be reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. Let us point you towards Uber, whose profitability just reached an inflection point.
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