XYL - Xylem: Bigger Does Not Mean Better Shareholder Value

2024-04-04 08:17:38 ET

Summary

• Xylem's growth over the past 7 years was driven by organic growth and acquisitions, but revenue growth remained in the single digits.
• Contribution margins did not show improvement, and returns were on a downtrend.
• While financially sound, there is not enough margin of safety for an investment opportunity based on an optimistic scenario.

Investment Thesis

Xylem Inc.'s ( XYL ) growth over the past 7 years was due to a combination of organic growth and acquisitions. Despite the acquisitions, there was only single-digit revenue growth. There was also no sign of improving contribution margins. Returns were on a downtrend. This is not a "wonderful company". While it is financially sound, there is not enough margin of safety based on an optimistic scenario. This is not an investment opportunity.

Business background

Xylem described itself as a leading global water technology company that designs, manufactures, and services highly engineered products and solutions primarily in the water sector....

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