Flowserve has been on fire lately. In the past six months alone, the company’s stock price has rocketed 60%, reaching $83.43 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Following the strength, is FLS a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does Flowserve Spark Debate?
Manufacturing the largest pump ever built for nuclear power generation, Flowserve (NYSE: FLS) manufactures and sells flow control equipment for various industries.
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.
Flowserve’s EPS grew at 14.9% compounded annual growth rate over the last five years, higher than its 4.9% 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, Flowserve’s margin expanded by 3.7 percentage points over the last five years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat. Flowserve’s free cash flow margin for the trailing 12 months was 9.2%.
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. Regrettably, Flowserve’s sales grew at a tepid 4.9% 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 Flowserve.
Final Judgment
Flowserve’s merits more than compensate for its flaws, and with the recent rally, the stock trades at 20.4× forward P/E (or $83.43 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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