Investment Thesis
While Pentair demonstrates solid profitability margins (20.3% operating margin, 16.6% net margin), the company faces critical operational challenges including negative operating cash flow of -67.4M despite positive net income, suggesting severe quality-of-earnings concerns. The anomalous 6117% revenue growth paired with flat net income growth indicates acquisition-driven expansion without corresponding returns, evidenced by deeply depressed ROE (4.5%) and ROA (2.4%).
Strengths
- Strong gross margin of 41.8% and operating margin of 20.3% demonstrates pricing power and operational efficiency
- Manageable leverage with debt-to-equity ratio of 0.51x and interest coverage of 7.0x
- Adequate liquidity with current ratio of 1.88x and quick ratio of 1.19x
Risks
- Negative operating cash flow of -67.4M despite 172.4M net income indicates critical quality-of-earnings issues and working capital deterioration
- Free cash flow of -85.9M with -8.3% FCF margin shows the company is burning cash despite reported profitability—unsustainable without balance sheet deterioration
- Abnormal 6117% YoY revenue growth coupled with 0% net income growth suggests value-destructive acquisition or major cost structure problems
- Severely depressed returns: ROE of 4.5% and ROA of 2.4% indicate poor capital efficiency despite decent margins
- Critically low cash position of 67.7M relative to 1.9B long-term debt leaves minimal financial flexibility
Key Metrics to Watch
- Operating cash flow trend—must return to positive to validate earnings quality
- Free cash flow sustainability and working capital changes by segment
- Return on equity and return on assets recovery trajectory
- Organic revenue growth rate excluding acquisition contribution
- Cash balance adequacy relative to debt obligations and capex requirements
Financial Metrics
Revenue
1.0B
Net Income
172.4M
EPS (Diluted)
$1.05
Free Cash Flow
-85.9M
Total Assets
7.1B
Cash
67.7M
Profitability Ratios
Gross Margin
41.8%
Operating Margin
20.3%
Net Margin
16.6%
ROE
4.5%
ROA
2.4%
FCF Margin
-8.3%
Balance Sheet & Liquidity
Current Ratio
1.88x
Quick Ratio
1.19x
Debt/Equity
0.51x
Debt/Assets
46.1%
Interest Coverage
6.98x
Long-term Debt
1.9B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T13:41:38.867816 |
Data as of: 2026-03-31 |
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