We came across a bullish thesis on AMETEK, Inc. (AME) on Substack by An Investing Life. In this article, we will summarize the bulls’ thesis on AME. AMETEK, Inc. (AME)’s share was trading at $176.14 as of March 14th. AME’s trailing and forward P/E were 29.70 and 24.69 respectively according to Yahoo Finance.
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AMETEK, Inc. is a global leader in electronic instruments and electromechanical devices, generating $6.9 billion in annual sales. The company dominates niche markets with highly engineered, mission-critical products that ensure strong pricing power and customer retention. It holds #1 or #2 positions in key segments, including medtech (21% of sales), aerospace & defense (18–19%), power (10%), automotive (10%), and semiconductors (7%). With 30% of revenues coming from aftermarket services, AMETEK enjoys a recurring revenue base that reinforces its stability through economic cycles.
AMETEK’s long-term growth model relies on four pillars: operational excellence, new product development, global expansion, and acquisitions. This strategy has driven sustained margin expansion, with EBIT margins rising from 16% in 2005 to 26% in 2024. The company invests 5–6% of revenue in R&D, fueling a vitality index of 27% up from 14% in 2004. Acquisitions play a crucial role, with AMETEK targeting differentiated, capital-light businesses that generate a 15%+ IRR. Remarkably, in its 100-year history, AMETEK has never recorded a goodwill write-off, demonstrating its disciplined approach to M&A. Its decentralized structure, with 42 business units rolling into 11 divisions, enables agility, cost control, and consistent high returns on capital.
Despite a moderating economic environment, AMETEK posted strong 2024 financials. Sales grew 5% YoY to $6.9 billion, though organic growth slowed to 4% due to project delays and destocking. Operating income increased 6% to $1.8 billion, with incremental margins exceeding 35%, while EPS rose 7% to $6.83, outperforming guidance. Free cash flow reached $1.7 billion, converting at an impressive 124% of net income. The company spent $125 million on acquisitions, including Virtek Vision and Polygon Physics, and repurchased $223 million in shares. Backlog stands at $3.4 billion, with organic orders up 8% in EMG and 3% in EIG in Q4, signaling an inflection after five quarters of declines.
Looking ahead, AMETEK’s 2025 guidance calls for low single-digit sales growth and adjusted EPS of $7.02–$7.18, up 3–5%. However, improving order trends, easing destocking headwinds, and rising U.S. and global fixed investment suggest this outlook may be conservative. Capital allocation remains a key strength, with 75% of free cash flow directed toward acquisitions—historically at 8–10x EBITDA but more recently at 12–13x for strategic deals like Paragon Medical. AMETEK’s ability to consistently generate free cash flow at 120% of net income allows for continuous reinvestment and shareholder returns.
At a market cap of $43.7 billion and EV of $45.6 billion, AMETEK trades at 27.8x 2024 EPS, with a 3.7% free cash flow yield. Based on 2025 EPS estimates of $7.10, its forward P/E stands at 26.7x—somewhat rich relative to historical norms. The stock remains a high-quality compounder, delivering steady 7–9% revenue growth, margin expansion, and strong free cash flow, but a pullback to $170 or below (24x forward P/E) would present a compelling entry point. If organic growth outperforms, supported by rising order momentum and macro tailwinds, AMETEK’s valuation could re-rate higher.
AMETEK, Inc. (AME) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 51 hedge fund portfolios held AME at the end of the third quarter which was 37 in the previous quarter. While we acknowledge the risk and potential of AME as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AME but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.