Over the past six months, Core & Main’s shares (currently trading at $47.71) have posted a disappointing 11.4% loss while the S&P 500 was down 4.8%. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Given the weaker price action, is now an opportune time to buy CNM? Find out in our full research report, it’s free.
Why Does CNM Stock Spark Debate?
Formerly a division of industrial distributor HD Supply, Core & Main (NYSE: CNM) is a provider of water, wastewater, and fire protection products and services.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Core & Main’s sales grew at an incredible 16% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers.
2. Increasing Free Cash Flow Margin Juices Financials
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Core & Main’s margin expanded by 8.9 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat. Core & Main’s free cash flow margin for the trailing 12 months was 7.9%.
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 Core & Main’s revenue to rise by 2.5%, a deceleration versus its 16% annualized growth for the past five years. This projection is underwhelming and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.
Final Judgment
Core & Main’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 18.4× forward P/E (or $47.71 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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