Consider These Factors, Then Buy Watts Water Technologies, Inc. (NYSE:WTS)

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

Stock market crashes are an opportune time to buy. High quality companies, such as Watts Water Technologies, Inc., are impacted by general market panic and sell-off, but the fundamentals of these companies stay the same. In other words, now is the time to buy strong, well-proven stocks at an attractive discount.

Check out our latest analysis for Watts Water Technologies

Watts Water Technologies, Inc. designs, manufactures, and sells products and systems that manage and conserve the flow of fluids and energy into, through and out of buildings in the residential and commercial markets. Formed in 1874, and headed by CEO Robert Pagano, the company currently employs 4.80k people and with the stock's market cap sitting at US$2.8b, it comes under the mid-cap category. Generally, large-cap stocks are well-resourced and well-established meaning that a bear market will cause it to rejig some short-term capital allocations, but stock market volatility is hardly detrimental to its financial health and business operations. Therefore large-cap stocks are a safe bet to buy more of when the wider market is going down and down.

Watts Water Technologies currently has US$353m debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. With an interest coverage ratio of 12.37x, Watts Water Technologies produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Moreover, its operating cash flows amply covers its total debt by 48%, which is higher than the bare minimum requirement of 20%. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning WTS's financial strength will continue to let it thrive in a fickle market.

WTS’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 17%, beating the industry growth rate of 4.0%. It has also returned an ROE of 14% recently, above the industry return of 14%. Watts Water Technologies's strong performance over time is a demonstration of its ability to grow through cycles, raising my confidence in the company as a long-term investment.

Next Steps:

Based on these three factors, WTS makes for a strong long-term investment in the face of a fickle stock market. If you’re a risk averse investor, lining your portfolio with proven companies you’re willing to buy more and more of as the price falls, is a good strategy to build your wealth over the long run. This is the beginning of your research, but before you decide to buy WTS, I highly urge you to understand more about the company, in particular, in these following areas:

1. Future Outlook: What are well-informed industry analysts predicting for WTS’s future growth? Take a look at our free research report of analyst consensus for WTS’s outlook.
2. Valuation: What is WTS worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether WTS is currently mispriced by the market.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.