Why Flowserve Stock Soared Today

Flowserve (NYSE: FLS) stock surged ahead 25.1% through 10:35 a.m. ET Wednesday despite reporting mixed earnings last night.

Heading into the Q3 report, analysts forecast Flowserve would earn only $0.80 per share non-GAAP (generally accepted accounting principles) on sales of just over $1.2 billion. In fact, Flowserve earned $0.90, while its sales underperformed, coming in just below $1.2 billion.

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Flowserve's Q3 earnings

Flowserve grew its sales only 3.6% year over year, although backlog did grow 4%. Bookings of new orders were a bit more worrisome, rising only 0.8%, which suggests sales growth could slow in the future. That's not particularly optimistic-sounding, though, so what explains the remarkable strength we're seeing in Flowserve's stock price today?

Well, isolated pockets of Flowserve's business do seem to be booming. Aftermarket parts bookings, for example, grew a respectable 6%, while bookings for power equipment surged 23% at this industrial flow management equipment-maker. Operating profit margin dropped a lot, to just 6.7%, but gross margin grew 90 basis points, which is positive.

Perhaps the best news of all is that Flowserve's $0.90 per-share profit -- the non-GAAP number cited -- was actually only half of GAAP earnings. When calculated according to GAAP, Flowserve earned $1.67 per share -- triple last year's Q3 profit!

Is Flowserve stock a buy?

Thanks to this surge in GAAP profit, Flowserve stock currently costs just 19.2 times trailing earnings -- and the stock's even cheaper when valued on its $629 million in trailing free cash flow. The stock's price-to-free cash flow ratio currently sits at an attractive 13.8x ratio.

That's cheap for a company that analysts forecast can grow earnings nearly 20% annually over the next five years. If Flowserve can deliver on this promise, the stock should be a "buy."

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Flowserve. The Motley Fool has a disclosure policy.