Over the past six months, Waste Management has been a great trade, beating the S&P 500 by 5.4%. Its stock price has climbed to $224.52, representing a healthy 12.5% increase. This run-up might have investors contemplating their next move.
Is now still a good time to buy WM? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Does Waste Management Spark Debate?
Headquartered in Houston, Waste Management (NYSE:WM) is a provider of comprehensive waste management services in North America.
Two Positive Attributes:
1. Long-Term Revenue Growth Shows Strong Momentum
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Waste Management’s sales grew at a solid 10.3% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.
2. Operating Margin Reveals a Well-Run Organization
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Waste Management’s operating margin has generally stayed the same over the last 12 months, averaging 17.4% over the last five years. This profitability was elite for an industrials business thanks to its efficient cost structure and economies of scale. This is seen in its fast historical revenue growth and healthy gross margin, which is why we look at all three data points together.
One Reason to be Careful:
Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Waste Management’s revenue to rise by 5.8%, a deceleration versus its 10.3% annualized growth for the past five years. This projection doesn't excite us and indicates its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
Final Judgment
Waste Management has huge potential even though it has some open questions, and with its shares topping the market in recent months, the stock trades at 27.2× forward P/E (or $224.52 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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