dimanche 11 décembre 2016

Not so great ROE stocks: Ametek (AME) (Part II)

Let's now take a look at another Giverny Capital big position: Ametek (AME). That stock represents about 7,1% of the fund, which is a lot.

It's surely a great stock, huh?

I'm sure most people don't know about this one, just like LKQ.

That business is a manufacturer of electronic instruments and electromechanical devices for many industries (defense, aerospace, medical, oil & gas, etc).

I'll use the same metrics as I did with LKQ.

Beta: 1,16, so there's more volatility here than on the market.

As we can see below, the growth is very steady:

2011 EPS: 1,58$
2012 EPS: 1,88$
2013 EPS: 2,10$
2014 EPS: 2,37$
2015 EPS: 2,45$
2016 EPS: 2,30$
EPS growth from 2011 to 2016: 45% (OK, but not so good)

I don't know why the EPS decreased from 2014 to 2016. Maybe they did some acquisition? I don't really care because (SPOILER ALERT) the rest of the analysis shows that it's not such an interesting stock.Why dig when you don't have a great feeling of ecstasy?

Actual ROE: 16
Average ROE last 5 years: 19

Debt VS earnings: About 7 times (medium debt level)

Shares: A little dilution and a little buyback here and there. So, at the moment, the number of shares  is about the same as in 2011.

Momentum indicators:
Sales growth last year: -5%
EPS growth last year: -13%
No momentum here. 

Actual PE: 22
Forward PE: 21
Average PE last 5 years: 22
On an historical basis, the actual price is normal.

Honeywell performance last 5 years: 121%
Siemens performance last 5 years: 21%
AME performance last 5 years: 78%

I don't really like that Ametek stock. The historical performance has been only OK. The actual PE and the forward PE aren't appealing. There's no momentum in recent earnings. There's no interesting buybacks.

I wouldn't buy that one. 

6 commentaires:

  1. Somehow remember this name in some guru portfolio, so I checked. It is Lou Simpson's second largest holding. (13.7% NAV)


    His largest holding Charles Schwab is a common pick among guru but I don't think its that great as well. Anyway, fuck those guys.

    What I think happens is that instead of investing their money looking at cold hard ROE numbers over the years, they invested their emotion after doing all those "schuttle butt" and handshaking with CEOs.

    1. I don't know why Lou Simpson put that much money on AME. But I know that ROE is not everything. Look at IBM, CMG.TO and GILD for some good examples.

    2. Agree ROE is not everything to it. Strong moat and a very sustainable Ok-ish ROE will do fine.

      GILD has staggering ROE but not strong enough moat, but I think you'll do well in the long term since you didn't overpaid. I like IBM a lot actually, some call it financial engineering but I don't think so, there's an excellent article about it's buyback policy.


      I long both IBM & GILD.

  2. I agree AME is an OK pick, better than LKQ. Having strong moat is good, but at the end of the day, making money (and making lots of it) is what counts.

  3. This stock is view as a mini Danaher. The have 12 divisions with leading position in niche products and invest a lot in R&D. They are believer of strong operational effectiveness that translate in an impressive net profit margin of 14% (double the ind. ave.) and aiming for 20. They do clever acquisitions such as this year with Brookfield (world leader in Viscometers) and ESP (leader remote power protection). It is more of a good free cash flow stock able to fuel more intelligent acquisitions, just like Danaher did. The only turn down is that there is a bit of cyclicality but this provides a good entry point. Continue ton bon travail !

    1. Merci pour les précisions. Mon analyse n'était qu'en surface et un peu de profondeur ne fait pas de tort!