Omega Flex Stock: Buy, Sell, or Hold?

Omega Flex (NASDAQ: OFLX), a leading producer of flexible metal hose and piping products, is often considered a reliable long-term investment. Its pipes are used to deliver gas fuels in residential and commercial buildings, as well as liquid fuels for automotive customers, marinas, and back-up generators. It also serves the healthcare and industrial markets.

Omega Flex was founded 50 years ago, went public 20 years ago, and currently holds more than 100 patents. Its revenue and earnings per share (EPS) grew at a compound annual growth rate (CAGR) of 9% and 19%, respectively, from 2011 to 2021.

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Image source: Getty Images.

Unfortunately, Omega Flex's revenue and EPS both declined in 2022, 2023, and 2024. As a result, its stock price plummeted nearly 70% over the past three years as the S&P 500 advanced more than 25%. Let's see why Omega Flex's growth stalled out, and if investors should buy, sell, or hold its stock after that steep pullback.

Why did Omega Flex stop growing?

Many older buildings still use black iron or copper pipes to deliver gases. Those metal pipes are rigid, require fittings and threads at each bend, and are prone to break during earthquakes and other natural disasters. Omega Flex addresses those issues with its flexible steel tubing, which can be bent by hand and installed across long, uninterrupted lines through a building.

Omega Flex now leads the corrugated stainless steel tube (CSST) market, which Verified Market Research estimates will grow at a CAGR of 4.8% from 2024 to 2031. But over the past three years, elevated interest rates throttled the growth of the housing market -- and the company's sales and profits tumbled.

Data source: Omega Flex.

For Omega Flex to grow, the housing market needs to stabilize. However, new U.S. housing starts in February only came in at 1.5 million on a seasonally adjusted basis -- which represented 11.2% growth from January but a 2.9% decline from a year ago.

The housing market could remain chilly as the threats of higher tariffs and protracted inflation douse hopes for deeper interest rate cuts this year. If interest rates stay elevated, Omega Flex's sales and profits will likely decline for at least another year.

Does Omega Flex look historically cheap yet?

Omega Flex is an under-the-radar stock that isn't covered by any Wall Street analysts yet. The company also doesn't provide any near-term guidance, so investors don't have a clear idea of where it might head over the next few years.

At $41, Omega Flex trades at 23 times its trailing earnings. That's actually its lowest price-to-earnings ratio since 2016. But if you look back further, you'll see that it traded at about 16 times trailing earnings throughout the second half of 2012 -- when the housing market finally bottomed out four years after the crash of 2008.

So if you use 2012 as a reference point, Omega Flex's stock doesn't look like a screaming bargain yet. However, its forward dividend yield of 3.3% might limit its downside potential. It only spent 72% of its free cash flow (FCF) on its dividends over the past 12 months, so it still has plenty of room to raise its payout until its business recovers.

So is it time to buy, sell, or hold this stock?

If you already own Omega Flex's stock, it makes more sense to hold it than to sell it before the housing market bottoms out. But if you don't already own it, it doesn't look cheap enough to be considered a value stock yet. It might be worth nibbling on at these levels since its dividends might limit its downside potential, but investors should brace for more volatility if interest rates stay high and the housing market stays chilly.

Should you invest $1,000 in Omega Flex right now?

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.