Dealmaker’s Diary: A 60% Profit Gusher

Alpesh Patel|October 17, 2024

What could be more boring than utilities companies?

How about the companies that support them?

But if boring = $$$… then I’ll take this boring, old industrial parts maker any day.

This $4.7 billion company is nearly 30 years old and operates in more than 50 countries. It offers end-to-end solutions with engineering, installation, and service and repair.

It has shown consistent revenue growth thanks to strong demand in the energy, chemicals, and water management sectors.

And the chart shows the potential for a 60% profit in less than a year!

Get all the details on the company – including its ticker – in my latest video.

This the kind of research my clients pay thousands for… but you get it for FREE as a Total Wealth subscriber.

Click on the thumbnail below to watch.

TRANSCRIPT

Hello, friends, and welcome to the Dealmaker’s Diary and Stock of the Week.

And the big reveal is… FlowServe (FLS).

Now, my team put this company amongst others in a short list for me. They go through the data, and then I double-check everything. I pick the ones that I think have the most potential, given my experience.

The company was founded in 1997. Does that make it old? Well, it’s sort of an old company, working in pumps, valves, and seals for industries like oil, gas, chemical processing, power generation, and water management.

What’s important is it doesn’t just deal in oil and gas. And, of course, the prices of oil and gas are going up as global growth grows. There’ll always be demand in that area anyway.

What I liked about the narrative is it’s in 50 countries and has end-to-end solutions. So it’s what you might call horizontally integrated and diversified due to it being in so many countries as well.

It has consistent revenue growth thanks to strong demand for energy, chemicals, water management. Being in multiple sectors has helped.

It has a $4.7 billion market cap. That is big.

Now let’s look at some of the numbers.

On my proprietary Growth Value Income rating, it’s got a 9. This is based on the growth of the company, weigh with the valuation of a company, its profitability to share price, its dividend yields. We weigh each of those factors, and score out of 10. This is a nine, so ticks my box.

Its forecast P/E is not cheap, not ridiculously cheap at 20.2. You’re paying $20 for every expected dollar of profit in the company. But that’s not overly expensive either. It’s not something which worries me.

Cash return on capital invested (CROCI) is 7. I would have loved it to have been a little bit higher. CROCI is a measure from Goldman Sachs Wealth Management… and you can click here to see how it’s such a key metric to look for.

The Sortino is a good number. That means the stock has a good average return versus downside risk. And there’s low volatility. I like that.

Plus, the stock has positive alpha. In other words, it’s good performer relative to the market.

Now let’s look at the chart.

Were I to do a projection on the most bullish case, we’d be looking at a 60%-plus return in about a year. That’s the most bullish case.

Were somebody put a gun to my head and say, well, where would you say to enter? I’d say probably around $43 because it’s below the most recent low. Could go a little bit lower if you want to give it the best upside potential.

We’re really looking at a projection of the continuous trend. The downside here is the momentum is a bit overbought. And when that happens, there can be a risk of then stock falling.

However, given the financials are strong, given the trend direction, given the long-term optimism about the recent performance, its Sortino and its consistent, good performance… I’m okay with it on all of those.

Plus on a discount cash flow basis, you have a 30% undervaluation.

That would take the stock price closer to about $80, which hits our mark, lo and behold.

That’s the bullish case. Obviously, the bearish case is something falls. The base case is it goes sideways.

But that also gives us a bit more confidence in those numbers.

Hope you liked that. Hope it also gives you an insight into what’s happening in the world.

It’s not all AI and tech after all, and certainly not necessarily in the recent weeks has it been all AI and tech.

There are other fruits out there. Hope you liked picking this one. Thank you very much.