A.O. Smith (AOS) could be one of my case-in-points as to why I think both quality and price/value matter. I’ve never seen any serious arguments that A.O. Smith isn’t a high-quality, well-run company with decent growth prospects, but I wasn’t excited about the valuation back in early 2018 and the shares have meaningfully lagged the broader industrial space since then (by over 20%), not to mention water plays like Watts (WTS) and HVAC names.
I do still like A.O. Smith’s leverage to growth opportunities in markets like China and India, and I likewise think there is a path for A.O. Smith to become more of an ESG story with its U.S. operations through both more efficient water heaters (and boilers) and a growing water treatment business. The main issue remains valuation, as even a premium valuation based upon the company’s superior returns (margins, ROIC, ROTA, et al) doesn’t suggest significant undervaluation today.
Read the full article here:
A. O. Smith Has Some Attractive Growth Angles, But The Valuation Isn't A Clear Bargain
No comments:
Post a Comment