Valmont’s stock price has taken a beating over the past six months, shedding 21.7% of its value and falling to $409.40 per share. This may have investors wondering how to approach the situation.
Given the weaker price action, is now the time to buy VMI? Find out in our full research report, it’s free.
Why does VMI stock spark debate?
Credited with an invention in the 1950s that improved crop yields, Valmont (NYSE: VMI) provides engineered products and infrastructure services for the agricultural industry.
Two positive attributes:
1. Operating margin rising, profits up
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Analyzing the trend in its profitability, Valmont’s operating margin rose by 5.3 percentage points over the last five years, as its sales growth gave it operating leverage. Its expansion shows it’s one of the better building materials companies as most peers saw their margins plummet. . Its operating margin for the trailing 12 months was 14.2%.
2. Outstanding long-term EPS growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Valmont’s EPS grew at 17% compounded annual growth rate over the last five years, higher than its 5.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One reason to be careful:
Long-term revenue growth disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Valmont’s sales grew at a tepid 5.2% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Valmont.
Final judgment
Valmont’s merits more than compensate for its flaws. With the recent decline, the stock trades at 16.3× forward P/E (or $409.40 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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