For one long year, United Technologies (NYSE:UTX) stock has budged not at all -- or so you might think.
At $108 and change, shares of United Technologies are up less than one single percentage point after 52 weeks of trading. It almost seems as if the stock of one of the world's great industrial conglomerates has sat idly by while the rest of the S&P 500 soared 18%.
But in fact, United Technologies stock has had quite a wild ride over this past year.
Now back essentially where the stock started one year ago, it's time for investors to ask: What are the chances United Technologies will succeed in playing catch-up with the rest of the market once more? And should investors try to catch a ride on this train before it departs the proverbial station?
Let's crunch a few numbers and see if we can figure out an answer to that question.
Valuing United Technologies stock
Priced at 17.1 times earnings (according to data from S&P Capital IQ), but expected by most analysts to grow these earnings at only 10% annually over the next five years, United Technologies stock looks pretty expensive today -- even after it's gone all the way back to square one. Simply put, if "value investors" prefer to buy stocks at PEG ratios of 1.0 or less, then United Technologies' valuation of 1.7 is probably too much to pay.
And this is before you notice that United Technologies stock is burdened with $15 billion in net debt -- giving UTC an enterprise value 15% more expensive than its market capitalization. It's also before you consider that free cash flow at United Technologies currently lags reported net income at just $5.5 billion in FCF, versus $5.8 billion reported "profits."
Result: UTC's light free cash flow number and its heavy debt load add up to an enterprise value to free cash flow ratio of nearly 21 on United Technologies stock.
Hope springs eternal
Admittedly, there are factors that have been weighing down United Technologies stock of late -- factors that could change in the future. For one thing, the company took a large charge to earnings this year over complications with its contract to deliver 28 Cyclone-class maritime helicopters to the Canadian government. That charge pushed UTC's entire Sikorsky helicopter division into the red for its results year to date.
That being said, the contract appears back on track today. Moreover, Sikorsky has landed multiple new, billion-dollar-plus contracts in recent months to build helicopters for everyone from the U.S. Air Force to the Turkish government. It also recently secured a refresh of its five-decade-long franchise building "Marine 1" helicopters for the U.S. President.
In short, things are looking up for Sikorsky -- and not just for Sikorsky. Otis Elevator, UTC's most profitable division and one of its bigger businesses, just recorded 44% more orders for elevators in the key North American market in Q2 than it did in the second quarter of 2013. 44% year-over-year growth? That has to be good for the stock. And overall, sales are up for United Technologies as a whole, too.
... but reality still bites
All of that being said, take all the good news coming out of United Technologies today, tally the numbers -- and analysts are still estimating only 10% earnings growth over the next five years. At the end of the day, that's simply not fast enough growth to justify paying nearly 21 times free cash flow for this business.
Long story short, while there may be a lot to like about United Technologies stock, the stock price is not one of them. So, to answer the question we asked at the beginning: No, I would not be a buyer at these levels.
Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.