Three wishes at once, usually only Kinder Surprise Egg can do it. In the stock market, on the other hand, you usually have to decide whether you want opportunities or security, growth or dividends, fantasy or substance. But there are also some hidden stocks that combine quality, growth and value. Here is one of them: animals (WKN: A2P0AJ).
This is why Vontier remains under the radar of most investors
Probably only a few readers know this stock. Even in the US it is not a “household name”. The company, with a market capitalization of $4 billion and revenue of more than $3 billion, is no slouch.
But Vontier only got its name in 2020, when it was from forty (WKN: A2AJ0F) was spun off. Fortive, on the other hand, is a fork of Danaher (WKN: 866197). All three use a variation of the legendary business system that has made Danaher so successful for decades.
Vontier owns a number of brands that are highly trusted in America but hardly known in Europe. These include the workshop outfitter Matco and the petrol station outfitter Gilbert Veeder-Root.
It probably doesn’t sound very exciting. But the best is yet to come. Because as I said: Vontier could be a reinforcement for every depot.
What makes Vontier a quality stock
Vontier today includes six main brands, created by more than 20 merged companies. They all have common characteristics such as a strong brand, a solid market position and close to customers. Together, we are therefore dealing with a well-diversified range of services, where the individual segments each have sustainable competitive advantages.
And through the application of the established business system, all business areas live a continuous improvement process. This also includes the constant search for new business opportunities, so that there is never any danger of slipping into crippling routines.
I also like that management puts a lot of thought into the best capital allocation. Investments in the brands, in acquisitions and in share buybacks are carefully considered with a focus on finding a good balance between return and robustness.
To me, these are all clear signs of Vontier’s high quality.
What makes Vontier a value stock
To find out if Vontier truly has value attributes, we need to look at the numbers. Among other things, the material here is interesting: As of April 1, the shareholders were entitled to 548 million US dollars in equity capital. To be honest, it’s a tiny bit compared to the much larger market cap.
It is also fitting that the ratio of net debt to operating profit before depreciation is quite high at a factor of 3.3 per July 1st. However, management promises that the ratio will fall to 2.5 to 3.0 by the end of the year thanks to the good cash flows.
Vontier is very profitable. The adjusted profit margin increased to 21.5% in the second quarter. The unadjusted value of 17.8% is also still strong and should be able to increase in the second half of the year. That puts the company on track to generate over $700 million in operating income by 2022.
Earnings per share is expected to exceed $3 this fiscal year. At a share price of $24.53, we’re looking at a solid single-digit price-to-earnings multiple. In connection with a price-to-sales ratio of 1.3, I tick off the value assignment.
What makes Vontier a growth stock
In the short term, Vontier is hardly a growth stock. Sales are expected to increase by a few percent this year. But already in 2023 there will probably be a decline again.
The reason for this: the credit card companies require gas station operators to update their payment systems. Otherwise, the responsibility would shift to the dealers. Gilbarco Veeder-Root has the right hardware and is therefore experiencing a boom.
But management is undeterred by this plunge. In the following years, it intends to seize growth opportunities. In addition to organic initiatives and industrial partnerships, this also includes regular high-growth acquisitions. Most recently, they added Driivz, a cloud-based charge management software that integrates with partner solutions.
With the three platforms retail solutions, digital technologies and alternative energies, Vontier wants to continually open up new market potential. The successes are still being masked by the downturn in the credit card hardware business.
But after that organic growth of 4 to 7% should be realistic plus additional inorganic growth. If it is also possible to increase margins and reduce the number of shares through buybacks, then in the medium to long term it may be possible to increase earnings per share. share of more than 10%.
That would be at the lower end of the range, but I think there are clear signs of a growth stock here.
Lots of quality, good long-term prospects and a low price
Vontier actually offers something for almost every taste. The stock is cheap, the company is good, and the hidden growth opportunities are interesting. The coming quarters may still be a bit uneven, as sales stagnate. But as soon as it becomes clearer that Vontier’s strategy and business system is taking off, this high-quality value stock will shift into growth mode.
The article Quality, growth and value in one – it’s possible with this share! first appeared on The Motley Fool Germany.
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Ralf Anders owns shares in Vontier. The Motley Fool does not own any of the stocks listed.
Motley Fool Germany 2022