Timken currently trades at $76.74 per share and has shown little upside over the past six months, posting a small loss of 4.7%. The stock also fell short of the S&P 500’s 12.6% gain during that period.
Is there a buying opportunity in Timken, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
We don't have much confidence in Timken. Here are three reasons why you should be careful with TKR and a stock we'd rather own.
Why Do We Think Timken Will Underperform?
Established after the founder noticed the difficulty freight wagons had making sharp turns, Timken (NYSE:TKR) is a provider of industrial parts used across various sectors.
1. Core Business Falling Behind as Demand Plateaus
Investors interested in Engineered Components and Systems companies should track organic revenue in addition to reported revenue. This metric gives visibility into Timken’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, Timken failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Timken might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. EPS 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.
Timken’s unimpressive 4.7% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability 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, Timken’s margin dropped by 8.9 percentage points over the last five years. If its declines continue, it could signal higher capital intensity. Timken’s free cash flow margin for the trailing 12 months was 5.6%.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Timken, we’ll be cheering from the sidelines. With its shares underperforming the market lately, the stock trades at 11.4× forward price-to-earnings (or $76.74 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now. We’d recommend looking at one of our top software and edge computing picks.
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