Valmont has followed the market’s trajectory closely. The stock is down 7.6% to $278.16 per share over the past six months while the S&P 500 has lost 9.8%. This may have investors wondering how to approach the situation.
Following the drawdown, is now a good time to buy VMI? 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 Positive Attributes:
1. Operating Margin Rising, Profits Up
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Analyzing the trend in its profitability, Valmont’s operating margin rose by 5.1 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 12.9%.
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.
Valmont’s EPS grew at an astounding 20.6% compounded annual growth rate over the last five years, higher than its 8.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Core Business Falling Behind as Demand Declines
In addition to reported revenue, organic revenue is a useful data point for analyzing Building Materials companies. This metric gives visibility into Valmont’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, Valmont’s organic revenue averaged 2.3% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Valmont might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
Final Judgment
Valmont has huge potential even though it has some open questions. With the recent decline, the stock trades at 15.1× forward price-to-earnings (or $278.16 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More Than Valmont
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