Over the past six months, Casella Waste Systems’s shares (currently trading at $87.36) have posted a disappointing 9.9% loss, well below the S&P 500’s 10% gain. This might have investors contemplating their next move.
Given the weaker price action, is this a buying opportunity for CWST? Find out in our full research report, it’s free.
Why Does Casella Waste Systems Spark Debate?
Starting with the founder picking up garbage with a pickup truck he purchased using savings from high school, Casella (NASDAQ: CWST) offers waste management services for businesses, residents, and the government.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Casella Waste Systems’s 19.2% annualized revenue growth over the last five years was incredible. Its growth surpassed the average industrials company and shows its offerings resonate with customers.
2. EPS Surges Higher Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Casella Waste Systems’s EPS grew at an astounding 24.2% compounded annual growth rate over the last two years, higher than its 18.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Shrinking Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Analyzing the trend in its profitability, Casella Waste Systems’s operating margin decreased by 4.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Casella Waste Systems’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its operating margin for the trailing 12 months was 3.5%.
Final Judgment
Casella Waste Systems’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 75× forward P/E (or $87.36 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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