Over the past six months, Core & Main’s stock price fell to $41.62. Shareholders have lost 12.8% of their capital, which is disappointing considering the S&P 500 has climbed by 21.1%. This might have investors contemplating their next move.
Following the drawdown, is this a buying opportunity for 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 Things to Like:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Core & Main grew its sales at an excellent 12.9% compounded annual growth rate. 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 8.5 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 fell. Core & Main’s free cash flow margin for the trailing 12 months was 8.2%.
One Reason to Be Careful:
New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
Unfortunately, Core & Main’s ROIC has decreased over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.
Final Judgment
Core & Main’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 13.4× forward P/E (or $41.62 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More Than Core & Main
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