Like Halma (OTCPK:HLMLY), Spirax-Sarco (OTC:SPXSY) is a stock that will frustrate value-driven investors. I don’t know how you question the excellence of execution at this company (feel free to try in the comments), and I can see a path for Watson Marlow continuing to generate high-single digit organic revenue growth (and 30%-plus operating margins) for some time. Likewise, I appreciate both the defensive/acyclical customer mix and the uncommon focus on customer value creation that’s woven into the business.
But we’re talking about a stock trading at around 25x 2021 EBITDA. While I think EBITDA growth could come close to the double digits over the next four to five years, and I believe double-digit long-term FCF growth is doable, I just can’t reconcile the valuation with fundamental drivers like cash flow, margins, ROIC, and so on. This isn’t a unique experience, I’ve seen it with Halma, Danaher Corp. (DHR), Roper Technologies (ROP), and other top-quality industrials, but I can’t really rest easy with a portfolio full of stocks where the valuation argument basically defaults to “trust me... it’ll all work out.”
Read more here:
Spirax-Sarco Is A Special Industrial Company, And Certainly Priced Like It
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