3 Big Reasons to Love Vertiv (VRT)

Vertiv has been on fire lately. In the past six months alone, the company’s stock price has rocketed 102%, reaching $254.23 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is it too late to buy VRT? Find out in our full research report, it’s free.

Why Are We Positive On Vertiv?

Formerly part of Emerson Electric, Vertiv (NYSE:VRT) manufactures and services infrastructure technology products for data centers and communication networks.

1. Core Business Firing on All Cylinders

Investors interested in Electrical Systems companies should track organic revenue in addition to reported revenue. This metric gives visibility into Vertiv’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, Vertiv’s organic revenue averaged 21.9% year-on-year growth. This performance was fantastic and shows it can expand quickly without relying on expensive (and risky) acquisitions.

2. 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, Vertiv’s margin expanded by 16 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. Vertiv’s free cash flow margin for the trailing 12 months was 18.7%.

3. New Investments Bear Fruit as ROIC Jumps

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Vertiv’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Final Judgment

These are just a few reasons why we're bullish on Vertiv, and after the recent surge, the stock trades at 40.7× forward P/E (or $254.23 per share). Is now a good time to buy despite the apparent froth? See for yourself in our in-depth research report, it’s free.

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