Valmont has followed the market’s trajectory closely. The stock is down 5.2% to $322.34 per share over the past six months while the S&P 500 has lost 1%. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Following the drawdown, is this a buying opportunity for VMI? Find out in our full research report, it’s free.

Why Does Valmont Spark Debate?

Credited with an invention in the 1950s that improved crop yields, Valmont (NYSE:VMI) provides engineered products and infrastructure services for the agricultural industry.

Two Things to Like:

1. Outstanding Long-Term EPS Growth

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Valmont’s EPS grew at an astounding 19.4% compounded annual growth rate over the last five years, higher than its 8.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.Valmont Trailing 12-Month EPS (GAAP)

2. Increasing Free Cash Flow Margin Juices Financials

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Valmont’s margin expanded by 7.9 percentage points over the last five years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Valmont’s free cash flow margin for the trailing 12 months was 13.8%.Valmont Trailing 12-Month Free Cash Flow Margin

One Reason to be Careful:

Core Business Falling Behind as Demand Declines

In addition to reported revenue, organic revenue is a useful data point for analyzing Building Materials companies. This metric gives visibility into Valmont’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Valmont’s organic revenue averaged 3.5% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Valmont might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

Story Continues

Valmont Organic Revenue Growth

Final Judgment

Valmont’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 17.3× forward P/E (or $322.34 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.

Stocks We Like Even More Than Valmont

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