Watts Water Technologies has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 7.3% to $193.01 per share while the index has gained 4.7%.

Is now the time to buy WTS? Find out in our full research report, it’s free.

Why Does Watts Water Technologies Spark Debate?

Founded in 1874, Watts Water (NYSE:WTS) specializes in manufacturing water products and systems for residential, commercial, and industrial applications globally.

Two Things to Like:

1. Operating Margin Rising, Profits Up

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Analyzing the trend in its profitability, Watts Water Technologies’s operating margin rose by 5.3 percentage points over the last five years, showing its efficiency has meaningfully improved. . Its operating margin for the trailing 12 months was 16.8%.

2. Outstanding Long-Term EPS Growth

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Watts Water Technologies’s EPS grew at a spectacular 17.4% compounded annual growth rate over the last five years, higher than its 7.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

Slow Organic Growth Suggests Waning Demand In Core Business

Investors interested in Water Infrastructure companies should track organic revenue in addition to reported revenue. This metric gives visibility into Watts Water Technologies’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Watts Water Technologies’s organic revenue averaged 2.1% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

Final Judgment

Watts Water Technologies has huge potential even though it has some open questions, but at $193.01 per share (or 23.6× forward price-to-earnings), is now the right time to buy the stock? See for yourself in our in-depth research report, it’s free.

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