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Woodward currently trades at $183.61 per share and has shown little upside over the past six months, posting a middling return of 2.6%. This is close to the S&P 500’s 3.8% gain during that period.
Is now the time to buy Woodward, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
We're cautious about Woodward. Here are three reasons why we avoid WWD and a stock we'd rather own.
Why Is Woodward Not Exciting?
Initially designing controls for water wheels in the early 1900s, Woodward (NASDAQ:WWD) designs, services, and manufactures energy control products and optimization solutions.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Woodward’s 2.8% annualized revenue growth over the last five years was sluggish. This was below our standards.
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 Woodward’s revenue to rise by 1.9%, a deceleration versus its 18.1% annualized growth for the past two years. This projection is underwhelming and implies its products and services will face some demand challenges.
3. Free Cash Flow Margin Dropping
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, Woodward’s margin dropped by 1.8 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal higher capital intensity. Woodward’s free cash flow margin for the trailing 12 months was 10.3%.
Final Judgment
Woodward isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 31.2× forward price-to-earnings (or $183.61 per share). This valuation tells us a lot of optimism is priced in - you can find better investment opportunities elsewhere. Let us point you toward ServiceNow, one of our all-time favorite software stocks with a durable competitive moat.
Stocks We Would Buy Instead of Woodward
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.