Strong Cash Yield: Is Pentair Stock A Buy?
Pentair (PNR) could be a good pick for your portfolio, with its high cash yield, good fundamentals, and discounted valuation. Companies like this can use cash to fuel additional revenue growth or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market
PNR Has Good Fundamentals
- Good Cash Yield: Not many stocks offer free cash flow yield of 6.2%, but Pentair stock does
- Strong Margin: Last 12 month operating margin of 21.7%
- Growth: Last 12 revenue growth of 3.1% – low growth, but this selection is all about high yield and margin
- Valuation: PNR stock is currently trading at 36% below the 2Y high, 14% below the 1M high, and at a PS lower than the 3Y average.
Below is a quick comparison of PNR fundamentals with S&P medians.
| PNR | S&P Median | |
|---|---|---|
| Sector | Industrials | – |
| Industry | Industrial Machinery & Supplies & Components | – |
| Free Cash Flow Yield | 6.2% | 4.2% |
| Revenue Growth LTM | 3.1% | 7.4% |
| Revenue Growth 3YAVG | 0.4% | 5.7% |
| Operating Margin LTM | 21.7% | 18.4% |
| Operating Margin 3YAVG | 20.2% | 18.3% |
| PE Ratio | 17.3 | 23.7 |
*LTM: Last Twelve Months
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While the fundamentals may look attractive, analyzing what has been driving the stock recently provides important context that puts financials in perspective.
And don’t forget, there is always a meaningful risk involved when exposing yourself to a single stock trade. One of the ways to understand that risk is to look at how PNR stock has behaved during past market crashes. In other words, how low can it really go, and are you willing to take that risk?
Stocks Like PNR
Not ready to act on PNR? Consider these alternatives:
These stocks have high free cash flow yield and strong operating margins, are trading meaningfully below their 2Y high, and have dipped notably during the last month.
A portfolio of stocks with the criteria above would have performed as follows since 12/31/2016:
- Average 6-month and 12-month forward returns of 10.4% and 20.4% respectively
- Win rate (percentage of picks returning positive) of about 74% for 12-month period
- Strategy consistent across market cycles
Portfolios Over Single Stock Picks
The fundamental profile of PNR – robust cash yield paired with a multi-year valuation trough – represents a potential mean-reversion signal. However, while individual stock trades can look compelling, those trades carry idiosyncratic risks that even elite cash flows cannot fully hedge.
The Trefis High Quality Portfolio (HQ) follows an objective and rule-based approach. By diversifying across 30 high-conviction names, the HQ strategy has outpaced the S&P 500, S&P Mid-cap, and Russell 2000.