Valmont has had an impressive run over the past six months. While the S&P 500 has been flat, the stock has returned 5.6% and now trades at $396.48. This run-up might have investors contemplating their next move.
Is now still a good time to buy VMI? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Does Valmont 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. Surging Backlog Locks In Future Sales
Investors interested in Building Materials companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Valmont’s future revenue streams.
Valmont’s backlog punched in at $1.65 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 15.1%. This performance was fantastic and shows the company has a robust sales pipeline because it is accumulating more orders than it can fulfill. Its growth also suggests that customers are committing to Valmont for the long term, enhancing the business’s predictability. 
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 8.8 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 more than its operating profitability. Valmont’s free cash flow margin for the trailing 12 months was 7.6%.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Valmont grew its sales at a mediocre 7.2% 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 18.3× forward P/E (or $396.48 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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