Although the S&P 500 is down 1.6% over the past six months, Gorman-Rupp’s stock price has fallen further to $35.58, losing shareholders 8.9% of their capital. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Following the pullback, is now a good time to buy GRC? Find out in our full research report, it’s free.
Why Does Gorman-Rupp Spark Debate?
Powering fluid dynamics since 1934, Gorman-Rupp (NYSE: GRC) has evolved from its Ohio origins into a global manufacturer and seller of pumps and pump systems.
Two Things to Like:
1. Skyrocketing Revenue Shows Strong Momentum
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Gorman-Rupp’s sales grew at an impressive 10.6% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers. 
2. EPS Surges Higher Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Gorman-Rupp’s EPS grew at an astounding 34.3% compounded annual growth rate over the last two years, higher than its 12.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Free Cash Flow Margin Dropping
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, Gorman-Rupp’s margin dropped by 4 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Gorman-Rupp’s free cash flow margin for the trailing 12 months was 8.4%.
Final Judgment
Gorman-Rupp’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 18.1× forward price-to-earnings (or $35.58 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Stocks We Like Even More Than Gorman-Rupp
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