Since May 2021, the S&P 500 has delivered a total return of 71.5%. But one standout stock has more than doubled the market - over the past five years, Trane Technologies has surged 168% to $492.15 per share. Its momentum hasn’t stopped as it’s also gained 13.3% in the last six months thanks to its solid quarterly results, beating the S&P by 5.4%.
Following the strength, is TT a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Are We Positive On TT?
With low-pressure heating systems as its first product, Trane (NYSE: TT) designs, manufactures, and sells HVAC and refrigeration systems, the former to commercial and residential building customers and the latter to commercial truck manufacturers.
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Trane Technologies’s sales grew at an impressive 11% compounded annual growth rate over the last five years. Its growth surpassed 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.
Trane Technologies’s EPS grew at 21.4% compounded annual growth rate over the last five years, higher than its 11% 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, Trane Technologies’s margin expanded by 8.4 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. Trane Technologies’s free cash flow margin for the trailing 12 months was 14.5%.
Final Judgment
These are just a few reasons why we think Trane Technologies is an elite industrials company, and with its shares topping the market in recent months, the stock trades at 31.2× forward P/E (or $492.15 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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