Over the past six months, Montrose has been a great trade. While the S&P 500 was flat, the stock price has climbed by 34.3% to $22.12 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy MEG? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Does MEG Stock Spark Debate?
Founded to protect a tree-lined two-lane road, Montrose (NYSE:MEG) provides air quality monitoring, environmental laboratory testing, compliance, and environmental consulting services.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Montrose’s sales grew at an incredible 24.1% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers. 
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Montrose’s margin expanded by 6.9 percentage points over the last five years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat. Montrose’s free cash flow margin for the trailing 12 months was 4.5%.
One Reason to be Careful:
Slow Organic Growth Suggests Waning Demand In Core Business
We can better understand Waste Management companies by analyzing their organic revenue. This metric gives visibility into Montrose’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Montrose’s organic revenue averaged 1.4% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
Final Judgment
Montrose’s merits more than compensate for its flaws, and with its shares topping the market in recent months, the stock trades at 8.7× forward EV-to-EBITDA (or $22.12 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More Than Montrose
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