Is Ametek Stock A Buy?

Ametek, Inc. (NYSE:AME) is a Pennsylvania-based electronics manufacturer that serves customers around the world. This industrial manufacturer took a considerable drop in demand for its aerospace products when airlines were effectively shut down and airline companies were placed on government-funded life support.

However, the company is ending the year trading at a record high market capitalization, with a P/E ratio above 30x and climbing into Q4. So, is Ametek stock a Buy?

This question is trickier to answer than might appear obvious at first glance. When you understand how the airlines plan to survive over the next five years, you’ll see why.

Nevertheless, AME electronic instruments and electromechanical devices are used in a broad range of industries, including energy, medical, and industrial markets. If these can offset declines in aerospace demand, AME share price could remain at a cruising altitude long enough to make investors happy.

Ametek Has Been On The NYSE Since 1930

As mentioned above, Ametek is a leading global electronics and electromechanical devices manufacturer. It’s a component of the S&P 500 and its IPO on the New York Stock Exchange was in 1930.

This long-standing company focuses on strategic acquisitions and new product development to stay relevant over the generations and has proven itself over nearly a century of operations.

Ametek equipment designs and manufactures precise measurement devices used in a variety of engineering industries. This precision is necessary when measuring small-scale changes in the most advanced sciences around the globe. It is in every sense of the word an international company with demand from a wide variety of geographies.

Everything from the cockpit instruments of airplanes, ships, and spacecraft to industrial and academic measuring devices are necessary, regardless of economic conditions.

It’s important that Science, Technology, Engineering, and Math (STEM) advances continue to keep the country competitive in a fierce global economy.

But is AME stock price worth it for investors now?

Is Ametek Stock A Buy?

AME stock has a market cap above $25 billion, with a P/E ratio over 30 heading into the winter holidays and calendar year end.

This puts its share price at a record high over $120 per share and gives analysts good reason to wonder if it can maintain these values over the next couple of years.

Third quarter 2020 results showed $270.7 million in operating income off $1.13 billion in quarterly revenue. While revenue declined, income went up, showing the company knows how to handle its margins.

The company has a strong dividend payment history and pays $0.72 per share, which comes out to 0.61 percent at the time of our research. Its latest payment will be recorded December 7 and paid on December 24, which has income-oriented investors keen to snap up shares ahead of the eligible date. That in turn has driven prices higher.

Some analysts believe this is a bad idea, as the dividend isn’t enough to combat the negative impact facing the entire market by year end.

Industrial usage is bound to continue growing, but it’s unclear how much other measurement instruments will be needed if industries like aerospace are cutting orders over the next five years to recover from the economic downturn.

This creates a lot of risk for shareholders, which needs to be recognized.

Risks Of Buying Ametek Stock

The coronavirus has had far reaching effects. It’s a global virus whose worldwide containment is necessary for the U.S. economy to continue growing.

This strain of the SARS virus already had a resurgence by year end, and it’s sensible to expect we’ll be combatting its effects for a generation to come.

Optimistically, we could expect life to return to normal over the next few years. Sure, technology and virtual connectivity make it easier for people to stay informed and productive from the confines of quarantines and social distancing. And we have seen massive business conferences, like E3, were skipped.

Plus, manufacturing bottlenecks and the possibility of rough economic conditions for the next two years could cause a strain on the company.

Nevertheless, AME still has plenty of room to cut costs and raise money.  Its cost- and asset-management skills shows it knows how to pivot existing resources to respond to a crisis situation.

This means the biggest risk for investors is not gaining as much as earlier investors will. Of course, there’s also the competition to consider.

Are Ametek Competitors A Threat?

Ametek isn’t in this battle alone – companies like Eaton (ETN), Danaher, ESCO Technologies, Johnson Electric, Allied Motion Technologies, Roper Technologies, and Teledyne Technologies are among the big players operating in the same industries.

This means it has fierce competition from a large pool of well-armed rivals. This is just a small section of the global manufacturing industry too.

As time goes on, companies will be bringing a lot of operations in-house to reign in costs. They’ll put expenses under a microscope, and some spending caps will be placed on R&D and other expenditures that could limit the potential pie each of these companies is competing for.

Discussion about The Fourth Industrial Revolution is reaching a fever pitch, and there’s no telling who will emerge as the victor of the autonomous age.

Is Ametek Stock A Buy? The Bottom Line

Ametek is a key global supplier of precise measurement equipment and devices used in a broad range of industries.

In a data-driven world heading toward automation, these tools are at the foundation of accelerating growth and productivity. Unfortunately, the worldwide pandemic affected productivity on a global scale.

While some industries flourished, key sectors like healthcare and aerospace took major hits. This hampered growth and kept the company from truly growing. However, quarterly earnings results remain positive throughout the year and point to the company’s continued push for profitability in rough times.

The economic conditions in a post-coronavirus world are only beginning to be realized. As the U.S. changes governments and the flu season washes over us, Ametek has a hard fight ahead of it to maintain its commitment to investors. 

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.