AMETEK (AME)

Electronic products manufacturer AMETEK (NYSE:AME) missed Wall Street’s revenue expectations in Q1 CY2025, with sales flat year on year at $1.73 billion. Its non-GAAP profit of $1.75 per share was 3.5% above analysts’ consensus estimates.

Company Overview

Started from its humble beginnings in motor repair, AMETEK (NYSE:AME) manufactures electronic devices used in industries like aerospace, power, and healthcare.

Industrial Internet of Things (IoT) companies are buoyed by the secular trend of a more connected world. They often specialize in nascent areas such as hardware and services for factory automation, fleet tracking, or smart home technologies. Those who play their cards right can generate recurring subscription revenues by providing cloud-based software services, boosting their margins. On the other hand, if the technologies these companies have invested in don’t pan out, they may have to make costly pivots.

Competitors of AMETEK include Danaher (NYSE:DHR), Agilent (NYSE:A), and Honeywell (NASDAQ:HON).

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, AMETEK grew its sales at a mediocre 6.5% compounded annual growth rate. This fell short of our benchmark for the industrials sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. AMETEK’s recent performance shows its demand has slowed as its annualized revenue growth of 5% over the last two years was below its five-year trend. We also note many other Internet of Things businesses have faced declining sales because of cyclical headwinds. While AMETEK grew slower than we’d like, it did do better than its peers.

This quarter, AMETEK missed Wall Street’s estimates and reported a rather uninspiring 0.2% year-on-year revenue decline, generating $1.73 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 3.9% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and implies its products and services will see some demand headwinds.

AMETEK’s gross margin is good compared to other industrials businesses and signals it sells differentiated products, not commodities. As you can see below, it averaged an impressive 35.3% gross margin over the last five years. That means for every $100 in revenue, roughly $35.34 was left to spend on selling, marketing, R&D, and general administrative overhead.

This quarter, AMETEK’s gross profit margin was 36.1%, up 2 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

AMETEK has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 24.9%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, AMETEK’s operating margin rose by 2.3 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, AMETEK generated an operating profit margin of 26.3%, up 2.2 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

AMETEK’s EPS grew at a solid 10.5% compounded annual growth rate over the last five years, higher than its 6.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into AMETEK’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, AMETEK’s operating margin expanded by 2.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For AMETEK, its two-year annual EPS growth of 9% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q1, AMETEK reported EPS at $1.75, up from $1.64 in the same quarter last year. This print beat analysts’ estimates by 3.5%. Over the next 12 months, Wall Street expects AMETEK’s full-year EPS of $6.94 to grow 4.3%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

AMETEK has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 22.1% over the last five years.

Taking a step back, we can see that AMETEK’s margin dropped by 2.1 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

AMETEK’s free cash flow clocked in at $394.5 million in Q1, equivalent to a 22.8% margin. This cash profitability was in line with the comparable period last year and its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although AMETEK hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked. Its five-year average ROIC was 12.8%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Uneventfully, AMETEK’s ROIC has stayed the same over the last few years. Given the company’s underwhelming financial performance in other areas, we’d like to see its returns improve before recommending the stock.

AMETEK reported $399 million of cash and $1.93 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.21 billion of EBITDA over the last 12 months, we view AMETEK’s 0.7× net-debt-to-EBITDA ratio as safe. We also see its $89.9 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see AMETEK beat analysts’ EPS expectations this quarter. On the other hand, its revenue slightly missed. Looking ahead, the company reiterated full-year EPS guidance, showing that it remains on track. Overall, this quarter was mixed. The stock remained flat at $170 immediately following the results.

Updated: May 21, 2025 at 10:10 PM EDT

When considering an investment in AMETEK, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

AMETEK isn’t a terrible business, but it isn’t one of our picks. To begin with, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its flat organic revenue disappointed. On top of that, its projected EPS for the next year is lacking.

AMETEK’s P/E ratio based on the next 12 months is 24.5x. This valuation tells us a lot of optimism is priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $192.44 on the company (compared to the current share price of $177.68).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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