Shareholders of Mueller Water Products would probably like to forget the past six months even happened. The stock dropped 21% and now trades at $21.75. This might have investors contemplating their next move.
Given the weaker price action, is this a buying opportunity for MWA? Find out in our full research report, it’s free.
Why Does Mueller Water Products Spark Debate?
As one of the oldest companies in the water infrastructure industry, Mueller (NYSE: MWA) is a provider of water infrastructure products and flow control systems for various sectors.
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.
Mueller Water Products’s EPS grew at 21.2% compounded annual growth rate over the last five years, higher than its 6.5% 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, Mueller Water Products’s margin expanded by 12.1 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. Mueller Water Products’s free cash flow margin for the trailing 12 months was 12.1%.
One Reason to Be Careful:
Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Mueller Water Products’s sales grew at a mediocre 6.5% 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 Mueller Water Products.
Final Judgment
Mueller Water Products’s merits more than compensate for its flaws. With the recent decline, the stock trades at 14.3× forward P/E (or $21.75 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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