2 Reasons to Watch CNM and 1 to Stay Cautious

Over the past six months, Core & Main’s stock price fell to $51.97. Shareholders have lost 16% of their capital, which is disappointing considering the S&P 500 has climbed by 9.9%. This might have investors contemplating their next move.

Given the weaker price action, is now the time to buy CNM? Find out in our full research report, it’s free for active Edge members.

Why Does CNM Stock Spark Debate?

Formerly a division of industrial distributor HD Supply, Core & Main (NYSE:CNM) is a provider of water, wastewater, and fire protection products and services.

Two Things to Like:

1. Skyrocketing Revenue Shows Strong Momentum

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Core & Main grew its sales at an incredible 17% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

2. Increasing Free Cash Flow Margin Juices Financials

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.

As you can see below, Core & Main’s margin expanded by 8 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. Core & Main’s free cash flow margin for the trailing 12 months was 7.4%.

One Reason to be Careful:

Slow Organic Growth Suggests Waning Demand In Core Business

Investors interested in Infrastructure Distributors companies should track organic revenue in addition to reported revenue. This metric gives visibility into Core & Main’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, Core & Main’s organic revenue averaged 2.2% year-on-year growth. This performance was underwhelming 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

Core & Main’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 20.8× forward P/E (or $51.97 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.

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