Since October 2024, AZZ has been in a holding pattern, posting a small return of 3.2% while floating around $83.73. However, the stock is beating the S&P 500’s 7.3% decline during that period.

Is AZZ a buy right now? Or is this an overvalued company? Find out in our full research report, it’s free.

Why Does AZZ Spark Debate?

Responsible for projects like nuclear facilities, AZZ (NYSE:AZZ) is a provider of metal coating and power infrastructure solutions.

Two Things to Like:

1. Long-Term Revenue Growth Shows Strong Momentum

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. Over the last five years, AZZ grew its sales at a solid 9.3% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

2. Operating Margin Rising, Profits Up

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Looking at the trend in its profitability, AZZ’s operating margin rose by 5.9 percentage points over the last five years, as its sales growth gave it immense operating leverage. Its operating margin for the trailing 12 months was 15.3%.

One Reason to be Careful:

Low Gross Margin Reveals Weak Structural Profitability

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

AZZ has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 23.7% gross margin over the last five years. That means AZZ paid its suppliers a lot of money ($76.28 for every $100 in revenue) to run its business.

Final Judgment

AZZ’s positive characteristics outweigh the negatives, and with its recent outperformance amid a softer market environment, the stock trades at 14.8× forward price-to-earnings (or $83.73 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More Than AZZ

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