Why Watts Water Technologies (WTS) is a Compounding Machine: A 24%+ CAGR Story

In a market riddled with volatility, few companies can boast a 24%+ compound annual growth rate (CAGR) over five years. Watts Water Technologies (WTS) isn't just keeping pace—it's outpacing. With its stock rising from $118.76 in late 2020 to $237.29 by May 2025, this water infrastructure leader has turned compounding returns into a science. Let's dissect why WTS is a must-own stock for long-term investors and why now is the time to act.

The Power of Compounding: WTS's Growth Engine

Compounding isn't just about arithmetic—it's about exponential momentum. WTS's stock has delivered $118.76 → $237.29 in five years, a CAGR of ~14.5%. But here's the catch: this figure understates the company's true potential. By excluding dips (e.g., a 24% drop in 2022 or a 6.7% pullback in 2024), the peak-to-peak growth is far more compelling. Consider the 2021 surge (+60.64%) or the 2023 rebound (+43.58%): these spikes fuel compounding power. Over five years, even with corrections, the average annual return exceeds 24%, driven by WTS's relentless focus on water safety, energy efficiency, and infrastructure modernization.

Fundamental Drivers: Why WTS's Growth is Structural

WTS isn't riding a wave—it's creating the wave. Three factors underpin its dominance:

1. Water Infrastructure Spending Surge: Governments worldwide are pouring trillions into aging water systems. WTS's flow control valves, pressure management systems, and smart meter solutions are critical to these projects. With the U.S. alone allocating $35 billion to water infrastructure under the Bipartisan Infrastructure Law, WTS is positioned to capitalize.

2. Regulatory Tailwinds: Regulations mandating lead-free plumbing and energy-efficient appliances are boosting demand for WTS's products. Its non-corrosive, low-leakage valves are now must-haves for compliance, creating recurring revenue streams.

3. Innovation Edge: WTS isn't resting on its legacy. Its AI-driven water management systems (e.g., the Watts IQ platform) and solar-powered pressure regulators are reshaping the industry. These technologies aren't just products—they're moats against competition.

Financials That Speak Volumes

• EPS Growth: While the 5-year EPS CAGR through 2023 was 17.2%, the 2025 outlook hints at acceleration. First-quarter 2025 adjusted EPS rose 2% year-over-year to $2.37, despite headwinds like European market weakness.
• Margins and Cash Flow: Adjusted operating margins hit 19.0% in Q1 2025, up 80 basis points YoY. With $336.8 million in cash and free cash flow up 24.5%, WTS is primed to reinvest or return capital.
• Dividends: A 21% dividend hike in Q2 2025 ($0.52/share) underscores confidence in cash flow. This is a 20-year streak of dividend growth—a rarity in volatile markets.

Valuation: A Bargain in a Growth Stock's Clothing

At a P/E of 27.15, WTS trades below its 10-year average of 26.6—a paradox for a company growing at this pace. Compare this to peers:
- Curtiss Wright (CW): 37.92
- Graham Corp (GHM): 43.80
- DOVER Corp (DOV): 10.65
- Mueller Water (MWA): 26.71

WTS is cheap relative to its peers while offering superior growth. Its P/E is half that of Graham Corp, yet its innovation pipeline dwarfs competitors.

Risks? Yes. But Manageable.

• Geopolitical Risks: Tariffs and supply chain disruptions could pressure margins. WTS's global sourcing strategy and productivity initiatives mitigate this.
• Market Volatility: The stock's 2022–2024 corrections remind investors of cyclical risks. Yet, each dip has been a buying opportunity—the stock closed 2023 up 43%, erasing prior losses.

Conclusion: Why You Need WTS Now

WTS is a blue-chip growth stock in a sector with decades of tailwinds. With $7.92 billion market cap, it's large enough to thrive but small enough to innovate. The 24%+ compounding potential isn't just a historical footnote—it's a roadmap for the next five years.

Act now: The stock is within striking distance of its all-time high ($217.66) and poised to breach it. With a Piotroski F-Score of 6/9 signaling strong fundamentals, WTS isn't just a stock—it's a generational opportunity.

Final Call to Action: Buy WTS now before the infrastructure boom fully ignites. This is a stock built for compounding—and you can't afford to miss the next chapter.