The past six months have been a windfall for Hudson Technologies’s shareholders. The company’s stock price has jumped 70.2%, hitting $10.21 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
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Why Is Hudson Technologies Not Exciting?
Despite the momentum, we're cautious about Hudson Technologies. Here are three reasons why HDSN doesn't excite us and a stock we'd rather own.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Hudson Technologies’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 14.1% over the last two years. 
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 Hudson Technologies, its EPS declined by more than its revenue over the last two years, dropping 46.8%. This tells us the company struggled to adjust to shrinking demand.
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 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, Hudson Technologies’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Hudson Technologies isn’t a terrible business, but it isn’t one of our picks. After the recent surge, the stock trades at 11.3× forward EV-to-EBITDA (or $10.21 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 the Amazon and PayPal of Latin America.
Stocks We Like More Than Hudson Technologies
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