Writing about IDEX (IEX) in August I said that this manufacturer of "best of breed" fluid management equipment was one that "I'd love to get a crack at a more reasonable valuation". With the market now quite a bit more concerned about supply chain and cost challenges in 2022, and maybe also more concerned about the durability of the cycle, the shares have declined about 12% since that last update.
Is IDEX cheap enough now? Not really, but it's close, and sometimes "close" is the best you get when it comes to the really well-run companies. Mid-single-digit long-term revenue growth (around 4% organic, augmented by 200bp of M&A) and high single-digit FCF growth can support a long-term annualized total return in the high single-digits, and that's very tempting. By the same token, though, I do see sector-wide risks that 2022 estimates could be too high and investors can be brutal once they deem a trend to be over.
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