Wabtec currently trades at $260.47 and has been a dream stock for shareholders. It’s returned 249% since March 2021, more than tripling the S&P 500’s 77.3% gain. The company has also beaten the index over the past six months as its stock price is up 34.8%.
Is now still a good time to buy WAB? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Does Wabtec Spark Debate?
Also known as Wabtec, Westinghouse Air Brake Technologies (NYSE: WAB) provides equipment, systems, and related software for the railway industry.
Two Positive Attributes:
1. Operating Margin Rising, Profits Up
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Looking at the trend in its profitability, Wabtec’s operating margin rose by 4.9 percentage points over the last five years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 16.1%.
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Wabtec’s EPS grew at 18.9% compounded annual growth rate over the last five years, higher than its 8.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Slow Organic Growth Suggests Waning Demand In Core Business
In addition to reported revenue, organic revenue is a useful data point for analyzing Heavy Transportation Equipment companies. This metric gives visibility into Wabtec’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, Wabtec’s organic revenue averaged 7.2% year-on-year growth. This performance slightly lagged the sector and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
Final Judgment
Wabtec’s merits more than compensate for its flaws, and with its shares beating the market recently, the stock trades at 25.2× forward P/E (or $260.47 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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