Should You Buy Donaldson Stock While Its Share Count Stops Shrinking?

Donaldson (DCI) has gained 9.1% over the past twelve months and still trades about 20% below its 52-week high. The filtration company behind those numbers sells replacement parts into equipment already in service, and the cash from that stream has been steadily shrinking its share count. The shrinking count is the case for buying the pullback. It is also the part that goes quiet in fiscal 2027.

Why Has Donaldson’s EPS Grown Faster Than Its Profits?

Over the last three years net income has grown 6.7% a year on average, and earnings per share have grown 8.7% a year on average. Nothing in that gap comes from selling more filters. It is fewer shares dividing the profit, so your claim on the company grew while you did nothing.

Over the latest twelve months the company spent about $171 million buying back stock and about $139 million on dividends, which after stock compensation is a total shareholder yield of 2.8% of its market value. Free cash flow covers that payout about 1.3 times, and the dividend has been paid every quarter for 70 years. That pairing, a covered payout and a falling share count, is what makes a capital compounder.

Filters wear out on a schedule the customer does not pick. Management said in August that roughly half of the industrial business outside power generation, of which dust collection is the largest, goes through recurring revenue, a durable side that supports the company when customer capital spending softens.

Will Donaldson Keep Retiring Its Own Stock?

Over the past year the share count came down 2.4%. Fiscal 2027 will not look like that. Donaldson paused repurchases after buying Facet, the largest acquisition in its history, and has already paid down over $100 million of the debt behind it.

On the August call management said the buyback has restarted, with plans to purchase about 1% of shares outstanding in fiscal 2027, enough to offset stock compensation dilution. That is a buyback holding the count steady rather than shrinking it. In fiscal 2027, earnings per share have to grow the hard way.

There is a margin cost on the industrial side too. Shifting power generation production to a plant in Mexico cost about 40 basis points of gross margin in fiscal Q4 2026, a quarter in which gross margin still rose 190 basis points to a record 36.7%, and management expects a full recovery by the middle of fiscal 2027.

So Is Donaldson Cheap Enough To Wait Out The Repair?

At 23.2 times trailing earnings, Donaldson is not priced as a broken compounder. The discount to its 52-week high buys a filtration franchise whose replacement parts keep selling, a payout its cash flow covers, and a year when the share count mostly sits still.

The risk is timing. If the industrial repair slips past the middle of fiscal 2027, you hold the stock at that multiple with neither the margin nor the denominator working for you. The lean here is patience rather than a bargain. Our dip buyer’s playbook ranks the pullbacks against each other, which is the cheapest way to see whether this one is worth the wait.

So Should You Wait For Donaldson’s Share Count To Start Shrinking Again?

Perhaps, but only if you would still want the shares with the share count holding steady. Waiting is hard when the reason to own a stock pauses for a year. It is worth seeing how Donaldson compares with the other names sitting below their highs. And if you would rather not time one company at all, look at the Trefis High Quality Portfolio. That portfolio has a track record of outpacing the three major indices.