Trane Technologies PLC (TT, Financial) has been making waves in the stock market with a daily gain of 2.94%, and a 3-month gain of 10.42%. The company's Earnings Per Share (EPS) stands at 8.11, a key indicator of its profitability. However, the question remains: is the stock fairly valued? In this article, we will delve into an in-depth analysis of Trane Technologies PLC's valuation, using the GF Value as a benchmark. Stay tuned for a comprehensive exploration of the company's financial health, growth prospects, and market position.
Company Overview
Trane Technologies PLC is a leading manufacturer and service provider of commercial and residential HVAC systems and transportation refrigeration solutions. Operating under its prominent Trane, American Standard, and Thermo King brands, the company generates approximately 70% of its sales from equipment and 30% from parts and services. Despite being domiciled in Ireland, North America accounts for over 70% of its revenue. With a current stock price of $205.95, Trane Technologies PLC has a market cap of $47 billion and is showing signs of being fairly valued based on its GF Value of $203.47.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. This estimation is derived from historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
As per our analysis, Trane Technologies PLC's stock appears to be fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
Assessing Financial Strength
Investing in companies with poor financial strength can pose a higher risk of permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy its stock. Key indicators such as the cash-to-debt ratio and interest coverage can provide valuable insights into a company's financial health. Trane Technologies PLC has a cash-to-debt ratio of 0.13, which is lower than 83.26% of 1607 companies in the Construction industry. This suggests that the company's financial strength is fair, with a GuruFocus rank of 6 out of 10.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk to investors. Trane Technologies PLC has been profitable 10 over the past 10 years, and its operating margin of 15.83% ranks better than 86.82% of 1631 companies in the Construction industry. This indicates strong profitability.
Growth is a crucial factor in a company's valuation. Trane Technologies PLC's 3-year average annual revenue growth rate is 8.4%, which ranks better than 66.45% of 1556 companies in the Construction industry. The 3-year average EBITDA growth rate is 13.6%, indicating strong growth potential.
ROIC vs WACC
Another way to evaluate a company's profitability is by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Trane Technologies PLC's ROIC is 16.54 while its WACC came in at 8.57, suggesting an efficient use of capital.
Conclusion
In summary, Trane Technologies PLC (TT, Financial) appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 66.84% of 1324 companies in the Construction industry. To learn more about Trane Technologies PLC stock, you can check out its 30-Year Financials here.
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