Over the past six months, Valmont has been a great trade, beating the S&P 500 by 17.9%. Its stock price has climbed to $510.77, representing a healthy 25% increase. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is it too late 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 Things to Like:
1. 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 21.4% compounded annual growth rate over the last five years, higher than its 6.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Valmont’s margin expanded by 10.2 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Valmont’s free cash flow margin for the trailing 12 months was 8.3%.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Valmont grew its sales at a mediocre 6.8% compounded annual growth rate. 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 positive characteristics outweigh the negatives, and with its shares beating the market recently, the stock trades at $510.77 per share (or a forward price-to-sales ratio of 2.3×). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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