Since August 2020, the S&P 500 has delivered a total return of 88.4%. But one standout stock has more than doubled the market - over the past five years, Valmont has surged 188% to $358.53 per share. Its momentum hasn’t stopped as it’s also gained 9.9% in the last six months thanks to its solid quarterly results, beating the S&P by 6.6%.

Is there a buying opportunity in Valmont, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Valmont Not Exciting?

Despite the momentum, we're cautious about Valmont. Here are three reasons why there are better opportunities than VMI and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

Investors interested in Building Materials companies should track organic revenue in addition to reported revenue. This metric gives visibility into Valmont’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Valmont’s organic revenue averaged 2.7% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Valmont might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. Projected Revenue Growth Is Slim

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.

Over the next 12 months, sell-side analysts expect Valmont’s revenue to rise by 2.9%. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

3. Recent EPS Growth Below Our Standards

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Valmont’s EPS grew at an unimpressive 6.8% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 3% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.

Final Judgment

Valmont’s business quality ultimately falls short of our standards. With its shares beating the market recently, the stock trades at 22.1× forward EV-to-EBITDA (or $358.53 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. We’d recommend looking at one of our all-time favorite software stocks.

Stocks We Like More Than Valmont

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