Industrial conglomerate ESCO (NYSE:ESE)
strikes me as another investment Rorschach test, as how you arbitrate
between ESCO's high-potential collection of businesses and its
uninspiring historical performance says a lot about whether you trust
past performance as a good predictor of future results or whether you
believe businesses should be valued based upon what they can do in the
future.
ESCO's track record in terms of margins,
free cash flow generation, returns on invested capital, and tangible
book value growth doesn't inspire much confidence, and I don't think
that the performance issues of the smart meter business (Aclara divested
years ago) fully excuse it. On the other hand, it's hard not to like a
good filtration/fluid control business and a collection of other
business with good market shares and the potential for improved growth
and margins. Today's valuation isn't absurd on the basis of what ESCO could
become, but for my own personal investment approach, I demand a wider
margin of safety unless/until management shows this "new and improved"
ESCO really is here to stay.
Continue here:
ESCO Technologies A Tough Mix Of Potential And Past Performance
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