2 Reasons to Like WCN and 1 to Stay Skeptical

Over the past six months, Waste Connections’s shares (currently trading at $171.55) have posted a disappointing 10.4% loss, well below the S&P 500’s 13.9% gain. This may have investors wondering how to approach the situation.

Following the pullback, is this a buying opportunity for WCN? Find out in our full research report, it’s free for active Edge members.

Why Does Waste Connections Spark Debate?

Operating a network of municipal solid waste landfills in the U.S. and Canada, Waste Connections (NYSE:WCN) is North America's third-largest waste management company providing collection, disposal, and recycling services.

Two Positive Attributes:

1. Skyrocketing Revenue Shows Strong Momentum

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Waste Connections’s 11.6% annualized revenue growth over the last five years was impressive. Its growth surpassed the average industrials company and shows its offerings resonate with customers.

2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Waste Connections has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 14.3% over the last five years.

One Reason to be Careful:

Slow Organic Growth Suggests Waning Demand In Core Business

We can better understand Waste Management companies by analyzing their organic revenue. This metric gives visibility into Waste Connections’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, Waste Connections’s organic revenue averaged 7.1% 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

Waste Connections’s merits more than compensate for its flaws. With the recent decline, the stock trades at 30.4× forward P/E (or $171.55 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.

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