If you want to find things to complain about with Ametek (NYSE:AME), be ready to put in a little extra work. It's possible to fault the relatively low returns of capital to shareholders and the generally high multiples the shares trade at, but neither are particularly damning in my book.
Ametek has shown over and over again that it can identify value-adding M&A targets and then build upon those deals with strong margin improvement (a la Danaher (DHR) and Fortive (FTV)), while reinvesting in the businesses to maintain their competitiveness and pricing power. That, in turn, has driven strong revenue (6% annualized growth for over a decade), good margins, strong (and improving) FCF margins, and above-average returns to shareholders.
Ametek presents two challenges for more fundamentally-inclined GARP-style investors. First, M&A is core to the business plan, but challenging to model on a year-to-year basis. Second, the company is a cash-generating machine and rarely trades at what look like conventionally cheap valuations.
I am concerned about the potential future impact on the share price from today's low rates and somewhat stretched industrial valuations, but I believe Ametek is in that upper echelon of high-quality industrials, and I believe the prospective returns today (mid-to-high single-digits) are in line to slightly better than the peer group average, and Ametek still offers some relative value.
Read the full article at Seeking Alpha:
Ametek Looking To Get Back To Meaningful M&A As Pandemic Challenges Ease
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