LOAR

We rate Loar Holdings Inc. (LOAR) as a Reduce with a composite score of 47.5/100 at a current price of $65.20. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in stability (73th percentile) and value (57th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (47/100), Low uncertainty, and Standard capital allocation.

Key items to watch: sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Loar Holdings Inc. holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 47.5/100 places it at rank #2411 in our full 7,333-stock universe. At $7.5B in market capitalization, Loar Holdings Inc. is a mid-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 31%, though momentum at the 41th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 52% (+9.9pp vs sector) narrow to operating margins of 22% (+21.2pp vs sector) and net margins of 14.3%, yielding a gross-to-net conversion rate of 27%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $65.20, Loar Holdings Inc. is trading near fair value based on current fundamentals. Our value factor score of 57/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 92.0x (a 314% premium to the sector median of 22.3x), EV/EBITDA of 55.5x (at a premium), P/B of 5.4x, P/S of 13.4x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Low uncertainty rating to Loar Holdings Inc.. The company exhibits strong financial stability with a beta of 1.13, conservative leverage (24% D/E), and a stability factor in the 73th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: elevated valuation multiple (P/E 92.0x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 73th percentile and quality factor at the 53th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 52% provide a buffer against cost pressures; conservative leverage (24% D/E) limits balance sheet risk; above-average stability (73th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Loar Holdings Inc.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 5.9%, and the balance sheet is managed within acceptable parameters (D/E: 24%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; Loar Holdings Inc. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. Absent a dividend, the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, Loar Holdings Inc. receives a Reduce rating with a composite score of 47.5/100 (rank #2411 of 7,333). Our quantitative framework assigns a Narrow Moat (47/100, trend: stable), Low uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 53/100.

Our analysis does not support a constructive view on Loar Holdings Inc. at this time. The combination of the current quantitative profile, low uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.