Mettler-Toledo (MTD): Buy, Sell, or Hold Post Q2 Earnings?

Mettler-Toledo’s 31.7% return over the past six months has outpaced the S&P 500 by 7.8%, and its stock price has climbed to $1,403 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy Mettler-Toledo, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.

Why Is Mettler-Toledo Not Exciting?

We’re happy investors have made money, but we're swiping left on Mettler-Toledo for now. Here are three reasons you should be careful with MTD and a stock we'd rather own.

1. Core Business Falling Behind as Demand Plateaus

Investors interested in Research Tools & Consumables companies should track organic revenue in addition to reported revenue. This metric gives visibility into Mettler-Toledo’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, Mettler-Toledo failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Mettler-Toledo might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Mettler-Toledo’s revenue to rise by 4.6%. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

3. Shrinking Adjusted Operating Margin

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.

Analyzing the trend in its profitability, Mettler-Toledo’s adjusted operating margin decreased by 1.1 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 30.2%.

Final Judgment

Mettler-Toledo isn’t a terrible business, but it doesn’t pass our bar. With its shares topping the market in recent months, the stock trades at 31.8× forward P/E (or $1,403 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.

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