Parker-Hannifin currently trades at $983.34 and has been a dream stock for shareholders. It’s returned 206% since April 2021, more than tripling the S&P 500’s 64.2% gain. The company has also beaten the index over the past six months as its stock price is up 37.2% thanks to its solid quarterly results.

Following the strength, is PH a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.

Why Does PH Stock Spark Debate?

Founded in 1917, Parker Hannifin (NYSE: PH) is a manufacturer of motion and control systems for a wide variety of mobile, industrial and aerospace markets.

Two Positive Attributes:

1. Operating Margin Reveals a Well-Run Organization

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Parker-Hannifin has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.5%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

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.

Parker-Hannifin’s EPS grew at 19.7% compounded annual growth rate over the last five years, higher than its 8.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

Slow Organic Growth Suggests Waning Demand In Core Business

We can better understand Gas and Liquid Handling companies by analyzing their organic revenue. This metric gives visibility into Parker-Hannifin’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Parker-Hannifin’s organic revenue averaged 2.5% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

Final Judgment

Parker-Hannifin’s positive characteristics outweigh the negatives, and with its shares outperforming the market lately, the stock trades at 29.8× forward P/E (or $983.34 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.

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