The past six months have been a windfall for Waters Corporation’s shareholders. The company’s stock price has jumped 51.7%, hitting $454.91 per share. This performance may have investors wondering how to approach the situation.
Is now still a good time to buy WAT? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why does Waters Corporation spark debate?
Founded in 1958 and pioneering innovations in laboratory analysis for over six decades, Waters (NYSE: WAT) develops and manufactures analytical instruments, software, and consumables for liquid chromatography, mass spectrometry, and thermal analysis used in scientific research and quality testing.
Two positive attributes:
1. Projected revenue growth is remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect Waters Corporation’s revenue to rise by 48.5%, an improvement versus its 11.7% annualized growth for the past five years. This projection is eye-popping and indicates its newer products and services will catalyze better top-line performance.
2. Stellar ROIC showcases lucrative growth opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Waters Corporation’s five-year average ROIC was 27.1%, placing it among the best healthcare companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
One reason to be careful:
New investments fail to bear fruit as ROIC declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
Over the last few years, Waters Corporation’s ROIC has unfortunately decreased significantly. Only time will tell if its new bets can bear fruit and potentially reverse the trend.
Final judgment
Waters Corporation’s positive characteristics outweigh the negatives, and with the recent rally, the stock trades at 29.4× forward P/E (or $454.91 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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