AMETEK currently trades at $177.60 per share and has shown little upside over the past six months, posting a middling return of 3.7%.
Is there a buying opportunity in AMETEK, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
We don't have much confidence in AMETEK. Here are three reasons why you should be careful with AME and a stock we'd rather own.
Why Is AMETEK Not Exciting?
Started from its humble beginnings in motor repair, AMETEK (NYSE: AME) manufactures electronic devices used in industries like aerospace, power, and healthcare.
1. Core Business Falling Behind as Demand Plateaus
In addition to reported revenue, organic revenue is a useful data point for analyzing Internet of Things companies. This metric gives visibility into AMETEK’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, AMETEK failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests AMETEK might have to lean into acquisitions to accelerate growth, 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 AMETEK’s revenue to rise by 3%, a deceleration versus its 6.2% annualized growth for the past two years. This projection doesn't excite us 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, AMETEK’s margin dropped by 2.1 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. AMETEK’s free cash flow margin for the trailing 12 months was 24.5%.
Final Judgment
AMETEK isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 24.6× forward price-to-earnings (or $177.60 per share). This multiple tells us a lot of good news is priced in - you can find better investment opportunities elsewhere. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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