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Why A. O. Smith Stock Rallied as Much as 13% in the First Half Hour of Trading Today

By Reuben Gregg Brewer – Oct 28, 2021 at 11:15AM

Key Points

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The water heater maker reported earnings, and investors were clearly impressed. Here's a quick look at why.

What happened

Shares of industrial concern A. O. Smith (AOS -1.18%) rose a quick 13% in early trading on Oct. 28. Although the stock gave back some of that early gain, it was still up by 9% roughly an hour into the trading day. The big news was the company's earnings release, which was obviously good reading.

So what

The water heater, water filter, and air purifier company reported record quarterly sales of $914.6 million, up 20% over the same quarter in 2020. Earnings per share, meanwhile, rose 26% to $0.82 per share. Although inflation-related price hikes were a notable piece of the equation, the company also pointed to strong demand for its products. All in all, it seems it was a pretty good quarter, and investors reacted accordingly.

A person singing in the shower and using shower head as a microphone.

Image source: Getty Images.

Of note, management highlighted solid demand in both North America and key foreign market China. In North America, roughly 85% of the demand was for replacements, the core of the business in this region. Segment earnings here rose 21% year over year, thanks mostly to price increases. In China, segment earnings rose 19%, with good results in water heaters and water filtration products. However, looking to the long-term future, the company also noted that sales in India rose 38% in the quarter. China has long been A. O. Smith's primary growth market, but it is maturing. So the strength in India, which is a newer market for the company, is very exciting to see.

Now what

There's nothing particularly sexy about the products A. O. Smith makes, but it has long managed to post strong levels of growth selling things that people want and need. Take a cold shower and you'll understand why. All in all, investors should be pleased with A. O. Smith's third-quarter results. However, those looking to get in the door should note that the stock is usually afforded a premium price, which largely appears to be the case today (though perhaps for good reason, given the strong earnings results). Those with a value bent will probably be better off keeping this name on their wish list for the next big market pullback.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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