Should You Invest in A. O. Smith?
A. O. Smith Corporation is an industrials company based in the United States which manufactures boilers, water heaters, water purification systems, tanks, and other products. They are based in the United States and were founded in 1874. They sell their products in North America, China, India, and Europe and have multiple manufacturing facilities in these markets.
Why You Should?
- A. O. Smith will benefit from a stronger economy returning after it bottomed out in March. A. O. Smith is an industrial company that performs better when the economy is strong as consumers increase their demand for their water heater and boiler products. This will benefit the company’s results in the long-term.
- If Joe Biden is the next president of the United States, A. O. Smith will benefit from the resolution of multiple trade tensions that the current administration has started with countries like China, India, Canada, and Europe. If these tensions are solved, A. O. Smith might be able to see better volumes from these markets. This will benefit the company.
Why You Should Not?
- A. O. Smith has to deal with tough competition from several other industrial companies that make directly competing products to the ones that A. O. Smith offers. Some companies include General Electric, Rheem, and many others. This might hurt the company in the future.
- The COVID-19 Pandemic has hurt A. O. Smith’s sales in key markets around the world as people stay indoors and as companies do not have money to upgrade their systems. However, the company looks for these impacts to only be short term as companies and individual consumers look to continue to build new structures and upgrade existing systems.
- A. O. Smith has had negative impacts from trade tensions bought on by the current administration. This has caused falling sales in its international markets and has caused an increase in the costs of materials needed to manufacture its products. This will negatively impact the company until these issues are solved.
- A. O. Smith has seen falling revenues and profits over the past 2 financial years due to the reasons mentioned above, It is unlikely that this will change this year due to the impacts from the COVID-19 Pandemic. This fall in revenues will hurt the company’s growth plans in the short-term, but the company looks to bounce back and continue for strong and steady growth in the future. In the financial year of 2019, the company reported revenues of around 3 billion and profits of around 370 million. Both of these metrics are lower than what the company reported in the financial year of 2018 when they had revenues of around 3.2 billion and profits of around 445 million.
In my opinion, I think that A. O. Smith is a great long-term investment due to a strong economy returning and the possible end of trade tensions. However, competition might hurt the company in the long-term. Other issues like the COVID-19 Pandemic, falling revenues and profits, and trade tensions only look to impact the company in the short to mid-term.