The past six months have been a windfall for ESCO’s shareholders. The company’s stock price has jumped 47.2%, hitting $195.41 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now still a good time to buy ESE? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Does ESCO Spark Debate?
A developer of the communication systems used in the Batmobile of “The Dark Knight,” ESCO (NYSE:ESE) is a provider of engineered components for the aerospace, defense, and utility sectors.
Two Things to Like:
1. Projected Revenue Growth Is Remarkable
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, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect ESCO’s revenue to rise by 18.2%, an improvement versus its 7.6% annualized growth for the past five years. This projection is eye-popping and indicates its newer products and services will fuel better top-line performance.
2. EPS Increasing Steadily
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
ESCO’s EPS grew at a solid 10.9% compounded annual growth rate over the last five years, higher than its 7.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Although ESCO has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.1%, somewhat low compared to the best industrials companies that consistently pump out 20%+.
Final Judgment
ESCO’s positive characteristics outweigh the negatives, and with the recent rally, the stock trades at 31.5× forward P/E (or $195.41 per share). Is now the time to buy despite the apparent froth? See for yourself in our in-depth research report, it’s free.
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