Over the past six months, Flowserve’s stock price fell to $78.09. Shareholders have lost 8.6% of their capital, which is disappointing considering the S&P 500 has climbed by 11.7%. This may have investors wondering how to approach the situation.
Given the weaker price action, is now an opportune time to buy FLS? Find out in our full research report, it’s free.
Why Does FLS Stock Spark Debate?
Manufacturing the largest pump ever built for nuclear power generation, Flowserve (NYSE:FLS) manufactures and sells flow control equipment for various industries.
Two Positive Attributes:
1. 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.
Flowserve’s EPS grew at 17.8% compounded annual growth rate over the last five years, higher than its 4.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
2. Increasing Free Cash Flow Margin Juices Financials
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, Flowserve’s margin expanded by 7.3 percentage points over the last five years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Flowserve’s free cash flow margin for the trailing 12 months was 8.9%.
One Reason to Be Careful:
Weak Backlog Growth Points to Soft Demand
Investors interested in Gas and Liquid Handling companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Flowserve’s future revenue streams.
Flowserve’s backlog came in at $3.34 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 7.1%. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in winning new orders. 
Final Judgment
Flowserve’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 18.2× forward P/E (or $78.09 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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