Since August 2020, the S&P 500 has delivered a total return of 90.8%. But one standout stock has more than doubled the market - over the past five years, Watts Water Technologies has surged 189% to $272.75 per share. Its momentum hasn’t stopped as it’s also gained 23.9% in the last six months thanks to its solid quarterly results, beating the S&P by 18.5%.

Is now still a good time to buy WTS? Or are investors being too optimistic? Find out in our full research report, it’s free.

Why Does WTS Stock Spark Debate?

Founded in 1874, Watts Water (NYSE: WTS) specializes in manufacturing water products and systems for residential, commercial, and industrial applications globally.

Two Positive Attributes:

1. Elite Gross Margin Powers Best-In-Class Business Model

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

Watts Water Technologies has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 45.5% gross margin over the last five years. That means Watts Water Technologies only paid its suppliers $54.49 for every $100 in revenue.

2. Outstanding Long-Term EPS Growth

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Watts Water Technologies’s EPS grew at an astounding 20.7% compounded annual growth rate over the last five years, higher than its 8.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

Core Business Falling Behind as Demand Plateaus

In addition to reported revenue, organic revenue is a useful data point for analyzing Water Infrastructure companies. This metric gives visibility into Watts Water Technologies’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, Watts Water Technologies 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 Watts Water Technologies 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).

Final Judgment

Watts Water Technologies has huge potential even though it has some open questions, and with its shares beating the market recently, the stock trades at 28.4× forward P/E (or $272.75 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

Stocks We Like Even More Than Watts Water Technologies

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

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