Waste Management has been treading water for the past six months, recording a small return of 2.9% while holding steady at $230.52.
Is now the time to buy WM? Or does the price properly account for its business quality and fundamentals? 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 Things to Like:
1. Skyrocketing Revenue Shows Strong Momentum
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Waste Management’s 10.6% annualized revenue growth over the last five years was impressive. 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 one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Waste Management’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, 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%, a deceleration versus its 10.6% 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’s positive characteristics outweigh the negatives, but at $230.52 per share (or 28.5× forward P/E), is now the time to initiate a position? See for yourself in our full research report, it’s free.
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