Over the past six months, Armstrong World’s stock price fell to $167.49. Shareholders have lost 13.6% of their capital, disappointing when considering the S&P 500 was flat. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Following the drawdown, is now an opportune time to buy AWI? Find out in our full research report, it’s free.
Why Is AWI a Good Business?
Started as a two-man shop dating back to the 1860s, Armstrong (NYSE: AWI) provides ceiling and wall products to commercial and residential spaces.
1. Skyrocketing Revenue Shows Strong Momentum
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Armstrong World’s sales grew at an impressive 11.6% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.
2. Outstanding Long-Term EPS Growth
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.
Armstrong World’s EPS grew at 15% compounded annual growth rate over the last five years, higher than its 11.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Armstrong World’s margin expanded by 5.5 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 more than its operating profitability. Armstrong World’s free cash flow margin for the trailing 12 months was 15.2%.
Final Judgment
These are just a few reasons why we think Armstrong World is one of the best industrials companies out there. With the recent decline, the stock trades at 20.2× forward P/E (or $167.49 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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