AME Ametek
Exceptional compounder priced for perfection—great business, wrong price.
The story
AMETEK is a late-growth serial acquirer in niche electronic instruments and electromechanical devices, serving aerospace, defense, medical, and process-industry customers with durable pricing power in sub-scale markets competitors ignore. Its 'AMETEK Growth Model' has compounded mid-single-digit organic growth layered with disciplined bolt-on M&A for three decades, sustaining margins well above industrial peers. The business has excellent economics but limited re-acceleration runway, and the current price already embeds sustained execution and a quality premium that leaves no cushion for error.
7% near-term growth nudges the 5-year 6.4% CAGR upward by a half-turn of M&A contribution; terminal at 3.0% anchors to a credible real-growth story for a GDP-plus industrial and stays 130 bps below the risk-free ceiling. Margins are already at the 25% target—no expansion is assumed given acquisition integration drag and niche-but-competitive end markets. Beta of 1.0 sits just below the 1.05 industry anchor, reflecting AMETEK's diversified niche mix and meaningful aftermarket/MRO revenue that dampens cyclicality; failure risk is negligible for an investment-grade compounder with $0.46B cash and manageable leverage.
Value drivers
| Revenue growth (Y1) | 7.0% |
| Terminal growth | 3.0% |
| Forecast horizon | 10y |
| Target operating margin | 25.0% |
| Years to target margin | 5 |
| Sales-to-capital | 0.60 |
| Beta | 1.00 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 8.8% |
| Terminal WACC | 8.8% |
Valuation bridge
| PV of explicit FCFF | 8.16B |
| PV of terminal value | 14.68B |
| Equity value | 20.81B |
| ÷ shares → per share | $90.79 |
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Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 8.13B | 7.0% | 25.4% | 1.70B | 886.38M | 815.16M | 749.15M |
| 2 | 8.66B | 6.6% | 25.3% | 1.81B | 888.21M | 917.21M | 774.67M |
| 3 | 9.19B | 6.1% | 25.2% | 1.91B | 882.28M | 1.03B | 795.87M |
| 4 | 9.71B | 5.7% | 25.1% | 2.01B | 868.11M | 1.14B | 812.50M |
| 5 | 10.22B | 5.2% | 25.0% | 2.10B | 845.35M | 1.26B | 824.40M |
| 6 | 10.71B | 4.8% | 25.0% | 2.20B | 813.80M | 1.39B | 837.18M |
| 7 | 11.17B | 4.3% | 25.0% | 2.30B | 773.36M | 1.53B | 844.64M |
| 8 | 11.61B | 3.9% | 25.0% | 2.39B | 724.12M | 1.66B | 846.79M |
| 9 | 12.01B | 3.4% | 25.0% | 2.47B | 666.30M | 1.80B | 843.72M |
| 10 | 12.37B | 3.0% | 25.0% | 2.54B | 600.32M | 1.94B | 835.61M |
Key risks
- Acquisition pipeline thins or deal multiples stay elevated, shrinking M&A's contribution to compounding
- Aerospace and defense procurement cycles turn—a meaningful revenue concentration risk
- Multiple compression: at >30x NOPAT the stock prices in perfection; any guide-down triggers outsized drawdown
Catalysts
- Transformative acquisition in software or analytics adjacent to instrumentation hardware, lifting organic growth ceiling
- Sustained U.S. and allied defense-spending acceleration drives above-trend order intake and backlog visibility