Trane Technologies: Hedge Funds' European Stock of Choice?

Trane Technologies plc (TT) has garnered significant attention from hedge funds, with popular funds like AQR Capital Management and D1 Capital Partners increasing their stakes in Q2 2024. The company's strong fundamentals, including a 15.22% increase in earnings in 2023, have attracted investors. However, the stock's high valuation (36.61x earnings) and enterprise value to sales (4.76x) may pose concerns. Despite this, Trane's ESG score, analyst upgrades, and consistent revenue growth make it an attractive pick. But is TT truly the best European stock to buy according to hedge funds?


Trane Technologies' valuation and earnings growth compare favorably to other European stocks favored by hedge funds. Its earnings multiple of 36.61x is higher than the sector average of 23.07, and its enterprise value to sales ratio of 4.76x is also above the sector average of 3.30. However, TT's earnings growth in 2023 was impressive, with revenue up 10.54% and earnings up 15.22%. While competitors like Carrier Global (CARR) and Johnson Controls (JCI) also reported solid growth, TT's earnings growth was more impressive.


Despite its high valuation, Trane Technologies' fundamentals and ESG score make it an attractive option for investors seeking exposure to the European industrials sector. The company's strong fundamentals score, with over 70% of companies having a lower mix of growth, profitability, debt, and visibility, and its good ESG score indicate a robust investment thesis.

However, investors should be mindful of the potential risks and challenges faced by Trane Technologies. The company operates in the cyclical HVAC industry, which is sensitive to economic conditions and energy prices. Additionally, its high valuation may limit upside potential, and intense competition in the HVAC sector poses a threat to its market share.

In conclusion, Trane Technologies' strong fundamentals, ESG score, and earnings growth make it an attractive pick for hedge funds. However, investors should be cautious about its high valuation and the risks associated with the cyclical HVAC industry. While TT may not be the best European stock to buy according to hedge funds, its fundamentals and growth prospects make it a compelling investment option. As always, investors should conduct thorough due diligence and consider their individual investment goals and risk tolerance before making any investment decisions.