If it seems like you've heard more about Fluor Corporation (FLR +5.85%) during the past few weeks than you have over the course of the past several years, you're not imagining things. You have. Its capabilities of building nuclear power facilities is a big reason for the recent swell of attention, although its infrastructure construction expertise has made it an increasingly important name in the proliferation of AI data centers as well. The world's also just catching up on some major projects that were postponed by the COVID-19 pandemic.
As veteran investors can attest, however, lots of noise doesn't necessarily always translate into lots of upside. Could an average-sized stake in Flour turn an investor into a millionaire?
Probably not. Here's why.
The wrong business at the wrong time
Don't misunderstand. Fluor's a solid company. If you already own it, you're hardly doomed.
The engineering and construction business isn't like most others, though, in a couple of important ways.
Chief among these differences is the fact that large-scale construction projects often require funding that can take a long time to secure. This slow movement paired with the sheer complexity of planning these jobs ultimately means, on average, single-digit growth. While McKinsey expects the industry's longer-term average yearly growth of about 5% to accelerate in the foreseeable future, the 6% to 7% growth pace it expects through 2030 is still tepid, and far from the double-digit growth needed to turn a relatively modest position into a seven-figure sum. That predicted growth rate may also be the norm for far longer than the forecast period.
NYSE: FLR
Key Data Points
Moreover, McKinsey's outlook may under-reflect a couple of logistical challenges that are likely to hold Fluor and its peers back for the indefinite future. That's the soaring cost of most building materials, as well as a lack of qualified construction workers who know what to do with them. The price of cold rolled steel sheets, for instance, seems to be stabilizing at about twice their cost for the several years prior to the coronavirus contagion. Meanwhile, construction industry advocate Associated Builders and Contractors says the business is facing a shortage of nearly 350,000 workers this year, en route to a shortfall of 456,000 workers by 2027.
Just not built for it
These are just a couple of data points, of course, and Fluor doesn't just do construction. Maintenance, supply chain management, and military logistics are some of the other capabilities in its wheelhouse.
Image source: Getty Images.
Still, it's worth noting that while it's experienced the occasional high-growth year, Fluor's long-term average revenue growth is in line with McKinsey's figure. Ditto for its foreseeable future. Single-digit growth is just the norm for this industry, and all of its adjacent ones that Fluor is in. Even when the company is doing well, there's simply not a lot of business to be won here.
So, no...Flour stock isn't a millionaire maker. It lacks the persistent double-digit growth potential that millionaire-making tickers need. If you're willing to trade some upside for safety and certainty, though, FLR is certainly an option worth considering.
