Mueller Water Products has had an impressive run over the past six months as its shares have beaten the S&P 500 by 22.7%. The stock now trades at $25.11, marking a 29.7% gain. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in Mueller Water Products, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Despite the momentum, we're cautious about Mueller Water Products. Here are three reasons why MWA doesn't excite us and a stock we'd rather own.

Why Is Mueller Water Products Not Exciting?

As one of the oldest companies in the water infrastructure industry, Mueller (NYSE: MWA) is a provider of water infrastructure products and flow control systems for various sectors.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Mueller Water Products’s sales grew at a mediocre 6.6% compounded annual growth rate over the last five years. This was below our standard for the industrials sector.

2. Slow Organic Growth Suggests Waning Demand In Core Business

Investors interested in Water Infrastructure companies should track organic revenue in addition to reported revenue. This metric gives visibility into Mueller Water Products’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, Mueller Water Products’s organic revenue averaged 3.4% 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.

3. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Mueller Water Products’s revenue to rise by 2.9%, close to its 2.8% annualized growth for the past two years. This projection doesn't excite us and indicates its newer products and services will not lead to better top-line performance yet.

Final Judgment

Mueller Water Products isn’t a terrible business, but it isn’t one of our picks. With its shares beating the market recently, the stock trades at 21.2× forward price-to-earnings (or $25.11 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere. We’d suggest looking at the most dominant software business in the world.

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