Terex has had an impressive run over the past six months as its shares have beaten the S&P 500 by 7.8%. The stock now trades at $60.65, marking a 19.1% gain. This run-up might have investors contemplating their next move.

Is now the time to buy Terex, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is Terex Not Exciting?

We’re happy investors have made money, but we're swiping left on Terex for now. Here are three reasons you should be careful with TEX and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

Investors interested in Construction Machinery companies should track organic revenue in addition to reported revenue. This metric gives visibility into Terex’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Terex’s organic revenue averaged 2.8% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Terex might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. EPS Took a Dip Over the Last Two Years

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for Terex, its EPS declined by 19.3% annually over the last two years while its revenue grew by 1.9%. This tells us the company became less profitable on a per-share basis as it expanded.

3. Free Cash Flow Margin Dropping

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, Terex’s margin dropped by 3.7 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business. Terex’s free cash flow margin for the trailing 12 months was 5.2%.

Final Judgment

Terex’s business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at 11.3× forward P/E (or $60.65 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at one of our all-time favorite software stocks.

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