Howmet (HWM): 3 Reasons We Love This Stock

The past six months have been a windfall for Howmet’s shareholders. The company’s stock price has jumped 55.3%, hitting $193.34 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now still a good time to buy HWM? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free for active Edge members.

Why Is HWM a Good Business?

Inventing the first forged aluminum truck wheel, Howmet (NYSE:HWM) specializes in lightweight metals engineering and manufacturing multi-material components used in vehicles.

1. Skyrocketing Revenue Shows Strong Momentum

We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Howmet’s annualized revenue growth of 11.6% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

2. EPS Increasing Steadily

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.

Howmet’s EPS grew at a solid 11.7% compounded annual growth rate over the last five years, higher than its 3.8% 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, Howmet’s margin expanded by 11.3 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. Howmet’s free cash flow margin for the trailing 12 months was 13.2%.

Final Judgment

These are just a few reasons why we're bullish on Howmet, and with the recent rally, the stock trades at 49.4× forward P/E (or $193.34 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .

Stocks We Like Even More Than Howmet

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