WATTS WATER TECHNOLOGIES-A (NYSE:WTS) – A Quality Stock with Strong Fundamentals

WATTS WATER TECHNOLOGIES-A (NYSE:WTS) stands out as a potential candidate for quality investors, meeting key criteria for long-term growth, profitability, and financial health. The company, which specializes in water conservation and flow control solutions, demonstrates strong operational performance and efficient capital allocation.

Why WTS Fits the Quality Investing Criteria

• High Return on Invested Capital (ROIC): With an ROIC (excluding cash and goodwill) of 46.56%, WTS significantly outperforms industry peers, indicating efficient use of capital.
• Strong Profitability Growth: EBIT growth over the past five years has averaged 14.57%, outpacing revenue growth, which suggests improving operational efficiency.
• Low Debt Burden: The company’s debt-to-free cash flow ratio of 0.60 means it could repay all debt in less than a year using current cash flows, reflecting a strong balance sheet.
• High Profit Quality: A five-year average profit quality of 110.38% shows that earnings are consistently converted into free cash flow, a sign of financial reliability.
• Revenue Stability: While revenue growth over five years has been modest at 3.68%, the company maintains steady demand for its essential water infrastructure products.

Fundamental Analysis Summary

WTS earns a solid 6 out of 10 in our fundamental assessment, with strengths in profitability and financial health. Key highlights include:

• Profitability Score: 9/10 – High margins (gross margin of 47.15%, operating margin of 17.65%) and strong returns on equity and assets.
• Financial Health: 8/10 – Low debt levels, excellent solvency metrics, and consistent cash flow generation.
• Valuation: 2/10 – The stock trades at a premium (P/E of 26.63), which may limit near-term upside but reflects its quality characteristics.

For investors seeking stable, well-managed companies with durable competitive advantages, WTS presents a compelling case.

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Disclaimer

This is not investment advice. Always conduct your own research before making investment decisions.