Please ensure Javascript is enabled for purposes of website accessibility

Why Roper Technologies Stock Popped 13% This Morning

By Rich Smith - Apr 28, 2020 at 11:54AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Earnings beat estimates, but does Roper stock cost too much?

What happened

Roper Technologies (ROP 1.52%) reported fiscal Q1 2020 earnings this morning, sending its shares 13% higher in early trading. As of 10:45 a.m. EDT, the industrial automation software maker's stock remains up a healthy 6.2%.

Roper reported adjusted profits of $3.05 per diluted share, ahead of analysts' expected $2.91. Sales for the quarter likewise exceeded expectations -- $1.35 billion versus the $1.3 billion that analysts had predicted.  

Candlestick chart and line graph on dark background

Image source: Getty Images.

So what

As calculated using generally accepted accounting principles (GAAP), however, Roper earned $2.28 per share, significantly less than its adjusted number and down more than 35% year over year. Roper's sales, however, were up 5%.  

Why did greater sales yield lower profits? Higher operating costs is one answer. "Selling, general and administrative expenses" climbed nearly twice as fast in Q1 as did the sales they supported. But also, Roper's prior-year first quarter included a big gain on the sale of its Scientific Imaging businesses -- $120 million -- that was absent in Q1 2020. Hence, the decline in earnings wasn't nearly as bad as it looked at first glance.

Now what

Speaking directly to the COVID-19 crisis, CEO Neil Hunn noted that "all of our businesses with manufacturing facilities have been deemed essential and remain operational, supplying our customers with vital and necessary products." Hunn reassured his shareholders that "we are highly confident in our ability to successfully navigate the situation." 

Updating guidance to incorporate the effects of the novel coronavirus pandemic, Roper said it now expects to earn between $2.50 and $2.70 per diluted share in Q2, and between $11.60 and $12.60 for the full year, using GAAP figures. Those are good, profitable numbers to see in the midst of a recession.

Unfortunately, they still work out to a full-year P/E of about 27.6 on Roper stock, which is probably too much to pay for a company with declining earnings this year -- even if those earnings are falling through no fault of Roper's own, and even if management is confident in its "ability to successfully navigate the situation."

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Roper Technologies, Inc. Stock Quote
Roper Technologies, Inc.
ROP
$400.67 (1.52%) $6.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.