Mueller Water Products has had an impressive run over the past six months as its shares have beaten the S&P 500 by 23.1%. The stock now trades at $24.96, marking a 37.3% gain. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Mueller Water Products, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.We’re happy investors have made money, but we're cautious about Mueller Water Products. Here are three reasons why you should be careful with MWA and a stock we'd rather own.
Why Is Mueller Water Products Not Exciting?
As one of the oldest companies in the water infrastructure industry, Mueller (NYSE:MWA) is a provider of water infrastructure products and flow control systems for various sectors.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Mueller Water Products’s sales grew at a mediocre 6.3% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector. 
2. Slow Organic Growth Suggests Waning Demand In Core Business
In addition to reported revenue, organic revenue is a useful data point for analyzing Water Infrastructure companies. This metric gives visibility into Mueller Water Products’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, Mueller Water Products’s organic revenue averaged 3% 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. 
3. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Mueller Water Products’s revenue to rise by 2.7%, close to its 2.7% annualized growth for the past two years. This projection doesn't excite us and indicates its newer products and services will not lead to better top-line performance yet.
Final Judgment
Mueller Water Products isn’t a terrible business, but it isn’t one of our picks. With its shares topping the market in recent months, the stock trades at 23.6x forward price-to-earnings (or $24.96 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better stocks to buy right now. Let us point you toward Chipotle, which surprisingly still has a long runway for growth.
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