AOS - A.O. Smith: Great Company Inferior Investment

2024-05-18 02:11:22 ET

Summary

• A.O. Smith Corporation's stock has returned about 20.5% in the past six months, matching the S&P 500's return.
• The author believes that 10 Year Treasury Notes offer superior risk-adjusted returns compared to investing in A.O. Smith's stock.
• The author suggests that the stock would need to drop to $42 per share for its cash flows to match those of the Treasury Note.

It’s been over six months since I published my latest article on A.O. Smith Corporation ( AOS ), and in that article, I suggested that Treasuries were more attractive than the stock. Since then, shares have returned about 20.5%, pretty much matching the return of the S&P 500 over the same time period. The yield on the 10 Year Note has dropped 23 basis points since the article was published. Today I want to return to the stock to see if it makes sense to buy at current prices, to see if the enterprise is 20% better than it was half a year ago. I’ll make that determination by looking at the latest financials, the valuation, and by comparing this investment to alternatives available....

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