Gorman-Rupp's Sell-Off Seems Overdone Relative To The Longer-Term Opportunities

Looking at Gorman-Rupp (NYSE:GRC) back in March of this year, I did like the company’s exposure to industrial markets like HVAC and longer-term opportunities in wastewater and stormwater/flood control, but I preferred names like Xylem (XYL) and Franklin Electric (FELE) on their combinations of end-market exposures and valuations. Since then, Xylem and Franklin Electric have both done better than the average industrial stock (up almost 25% and about 5%), while Gorman-Rupp has lost about a quarter of its value.

Gorman-Rupp’s has lagged many of its water/fluid control peers in terms of both organic growth and margins this year, and the acquisition of Fill-Rite brought considerable debt onto the balance sheet. Weaker margins and a higher discount rate (due to higher interest rates and a riskier balance sheet) do reduce my valuation some, but the market has more than corrected for this and I think the valuation is a little more interesting now.

 

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Gorman-Rupp's Sell-Off Seems Overdone Relative To The Longer-Term Opportunities