NewMarket (NEU): Can a 34% Stock CAGR Outpace Slower Earnings Growth?

The stock of NewMarket Corporation (NYSE:NEU) has soared to historic highs, fueled by a 34% compound annual growth rate (CAGR) in its stock price over the past two decades. Yet, its earnings and revenue growth rates—critical underpinnings for such valuation—tell a different story. How can a stock achieve such exponential gains while its core financial metrics grow at a more modest pace? This analysis explores the divergence and what it means for investors.

The Numbers: A Tale of Two Growth Rates

The 34% CAGR cited for NewMarket's stock price stems from its rise from $16.22 in 2005 to $660.68 in 2025, a staggering 3,997% increase over 20 years. This growth is driven not just by earnings but by a combination of operational excellence, strategic acquisitions, and shareholder-friendly policies. Meanwhile, the company's earnings (EPS) and revenue growth rates are far less explosive:

• 10-year EPS CAGR: 9.95%
• Average annual revenue growth: 7.01% (not explicitly 10-year)
• Recent EPS growth: A 20.4% jump in 2024, up from a 15.8% five-year average

The disconnect is stark: stock price growth has outpaced earnings growth by roughly 2.5x over the long term. To understand this, we must dissect NewMarket's competitive advantages and investor sentiment.

Why the Stock Outperforms Earnings: A Structural Edge

NewMarket's valuation is less about raw earnings growth and more about margins, efficiency, and capital allocation. Here's why investors have been willing to pay a premium:

1. Dominant Market Position in Specialty Chemicals

As the owner of Afton Chemical and Ethyl Corporation, NewMarket dominates the petroleum additives market, a niche with high barriers to entry. These additives enhance fuel efficiency and engine longevity, making them indispensable to the automotive and industrial sectors.

• Petroleum additives segment revenue: $2.6 billion in 2024 (slightly down from 2023 but still robust).
• Operating profit growth: Rose to $591.9 million in 2024 from $514.4 million in 2023, driven by cost efficiencies and lower raw material costs.

2. Margin Expansion and High Returns on Equity

NewMarket's net margins jumped to 17.2% in 2024, up from 14.8% in 2023, reflecting pricing power and cost discipline. Its return on equity (ROE) of 31.6% places it among the top industrial companies, signaling efficient capital use.

3. Strategic Acquisitions Boosting Value

The 2024 acquisition of American Pacific Corporation (AMPAC) added $141.2 million in revenue and $17.5 million in operating profit to its specialty materials segment. AMPAC's performance exceeded pre-acquisition expectations, demonstrating NewMarket's ability to integrate and leverage synergies.

4. Shareholder-Friendly Policies

• Dividends: A $2.75 quarterly dividend (up 40% since 2020) and a $500 million buyback announced in late 2024.
• Total shareholder return (TSR): 142% over three years, outperforming the S&P 500's TSR of 83% during the same period.

Risks and Challenges

While NewMarket's long-term trajectory is compelling, investors should consider these headwinds:

• Revenue Plateau: Revenue has declined slightly over the past two years due to price competition and volume headwinds in the petroleum additives segment.
• Earnings Volatility: The 2024 20.4% EPS surge may not be sustainable if raw material costs rebound or demand weakens.
• Valuation Multiple: At 25x forward P/E, the stock is trading at a premium to its historical average of 18-20x, leaving little room for error in earnings growth.

Investment Thesis: Buy the Business, Not Just the Stock

NewMarket's 34% stock CAGR reflects investor confidence in its long-term moat, operational discipline, and cash generation. However, the disconnect between earnings and valuation requires caution:

• Bull Case: If NewMarket can sustain mid-teens EPS growth (15-20%) through margin expansion and new markets, its premium valuation could be justified. Recent moves like the AMPAC acquisition suggest this is achievable.
• Bear Case: A prolonged downturn in the chemicals sector or a failure to reignite top-line growth could pressure the stock, especially at current multiples.

Final Take: Hold for Income, but Watch Margins

NewMarket is a conservative growth pick for income-focused investors due to its 4.2% dividend yield and track record of dividend hikes. However, aggressive growth investors may want to wait for a pullback or clearer signs of revenue stabilization.

Recommendation: Hold NEU if you value steady dividends and long-term compounding, but be mindful of valuation risks. Avoid chasing the stock at all-time highs unless you're confident in its ability to reignite revenue growth in 2025 and beyond.

Data as of June 6, 2025. Past performance does not guarantee future results.