Dresser-Rand’s CEO’s LLC Invested Over $1 Million

We would compare Dresser-Rand to Siemens AG (NYSE:SI), General Electric Company (NYSE:GE), ABB Ltd (NYSE:ABB), and Flowserve Corporation (NYSE:FLS). These four companies trade in a narrow range in terms of their trailing earnings, with P/E multiples between 17 and 19. This represents a considerable discount to Dresser-Rand on that basis. However, most of these companies are considerably larger and so do not have as strong growth prospects; in fact, last quarter both Siemens and ABB experienced a decline in net income compared to the same period in 2011. Analysts expect high growth rates at these four companies as well, but lower than at Dresser-Rand with the result being that they all carry forward P/Es between 11 and 14. As such it’s possible that that company’s superior potential is already accounted for in the stock price and the five stocks are priced relatively fairly.

It’s always notable when a company’s CEO is buying shares, even if it is through an LLC, and we do like Dresser-Rand’s growth rates. However, the trend in revenue and earnings growth appears to be down and yet the current price assumes a large amount of improvement in the next few years in order to compensate for the premium to similar companies in terms of trailing earnings. As a result we would be cautious about buying the stock and would certainly need to ease our concerns about the falling growth rates before buying any shares.

Disclosure: I own no shares of any stocks mentioned in this article.