Enviri currently trades at $8.73 per share and has shown little upside over the past six months, posting a middling return of 3.6%.
Is there a buying opportunity in Enviri, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Enviri Will Underperform?
We're cautious about Enviri. Here are three reasons why NVRI doesn't excite us and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Enviri’s annualized revenue growth of 7.1% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. 
2. Cash Burn Ignites Concerns
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Enviri’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 2%, meaning it lit $1.95 of cash on fire for every $100 in revenue.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Enviri burned through $48.02 million of cash over the last year, and its $1.56 billion of debt exceeds the $102.5 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Enviri’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Enviri until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Enviri, we’ll be cheering from the sidelines. That said, the stock currently trades at 2.8× forward EV-to-EBITDA (or $8.73 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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