Waters stock (NYSE: WAT), an analytical laboratory instrument and software company, trades at $266 per share, 7% below the level seen in March 2021. WAT stock was trading at around $331 in early June 2022, just before the Fed started increasing rates, and is now 20% below that level, compared to 13% gains for the S&P 500 during this period. The recent stock decline can partly be attributed to weak demand in China and the company’s lowering of its full-year 2023 guidance.
Interestingly, WAT stock has had a Sharpe Ratio of 0.4 since early 2017, lower than 0.5 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
Returning to the pre-inflation shock high of over $425 (seen in Sep 2021) means that WAT stock will have to gain around 60% from here, and we don’t think that will materialize anytime soon. That said, WAT stock currently trades at 5.4x revenues, below its last five-year average of 6.6x, and appears to have some room for growth. Our Waters Valuation Ratios Comparison dashboard has more details.
Our detailed analysis of Waters’ upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.
2022 Inflation Shock
Timeline of Inflation Shock So Far:
- 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
- Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
- April 2021: Inflation rates cross 4% and increase rapidly.
- Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
- June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
- July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
- October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
- Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, although another rate hike remains in the cards.
In contrast, here’s how WAT stock and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)
Waters
WAT
WAT stock declined from nearly $67 in September 2007 (pre-crisis peak) to $35 in March 2009 (as the markets bottomed out), implying it lost 48% of its pre-crisis value. It recovered after the 2008 crisis to levels of around $62 in early 2010, rising 76% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.
Waters’ Fundamentals Over Recent Years
Waters’ revenue increased from $2.4 billion in 2019 to $3.0 billion in 2022, led by an increase in overall demand and the launch of new liquid chromatography and mass spectrometry products. The company acquired Wyatt Technology – a light scattering instruments company – in May 2023, which is expected to bolster its sales growth. Waters’ operating margin has largely remained stable at around 29% in recent years. The company’s earnings stood at $11.80 on a per-share and reported basis in 2022, compared to the $8.76 figure in 2019. Given the slowing demand in China, the company lowered its 2023 earnings outlook to $12.20 to $12.30 from an earlier range of $12.55 to $12.75.
Does Waters Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?
Waters’ total debt increased from $1.7 billion in 2019 to $2.7 billion now, while its cash decreased from $337 million to $331 million over the same period. The company took additional debt earlier this year to fund its Wyatt Technology acquisition. The company also garnered $612 million in cash flows from operations in the last twelve months. Given its cash cushion, it should be able to service its near-term obligations.
Conclusion
With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe WAT stock has the potential for more gains once fears of a potential recession are allayed. That said, unfavorable macroeconomic factors and slowing demand in China are potential risk factors for realizing these gains.
While WAT stock can see higher levels, it is helpful to see how Waters’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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