Waters Corporation (NYSE:WAT)
is far from a household name among most investors. But millions of investors who use S&P 500 index funds as part of their investing strategy indirectly own shares of the medical-technology company, and those who've bought shares directly have to be pleased with the performance that Waters stock has given them recently.
But given the nice returns that the company has provided, investors should ask whether Waters Corporation (NYSE:WAT) has the potential to keep growing. Let's take a look at this little-known company to find out where its best prospects lie and how Waters is moving forward to try to capitalize on them.
What Waters does
Waters Corporation (NYSE:WAT) works to help scientists in numerous fields perform scientific analysis, with instruments that assist in the fields of liquid chromatography, mass spectrometry, and thermal analysis. Its products have application throughout the scientific professions, with companies in the pharmaceutical, life sciences, biochemical, and industrial sectors all having occasion to work with Waters to help them with develop and analyze their efforts in coming up with their own scientific innovations. With a history of that goes back 50 years, Waters' first major client was The Dow Chemical Company (NYSE:DOW)
, which invested $400,000 in the young company and eventually took a substantial stake in Waters before it merged with biosciences company Millipore in 1980.
Waters Corporation (NYSE:WAT) now has operations that span the globe, getting roughly 30% of its revenue from the U.S., a similar amount from Europe, and the remainder mostly from Japan, China, and other Asian countries. Given the substantial increase in scientific and industrial activity in Asia in recent decades, the region remains an important driver of growth for Waters.
How Waters stands up to the competition
Since coming public in 1995, the stock has performed extremely well, rising at an average annual clip of more than 17%.
Waters Total Return Price data by YCharts.
But Waters Corporation (NYSE:WAT) is far from the only company serving the scientific community. Thermo Fisher Scientific Inc. (NYSE:TMO)
is the giant in the industry, with more than six times as many employees as Waters and seven times the revenue that Waters generates. Moreover, Thermo Fisher is only poised to get larger
in the near future, as the company announced in April that it would acquire Life Technologies Corp. (NASDAQ:LIFE)
for $13.6 billion. The deal will give Thermo Fisher exposure to the promising genomic testing industry -- an area that has seen increasing growth as the costs of genetic analysis have come down and therefore begun to inspire more commercial viable applications -- and shows the rewards available to investors in companies like Life Technologies given the trend toward consolidation in the industry. Agilent Technologies Inc. (NYSE:A)
is another major player in medical- and chemical-lab equipment, with its own liquid chromatography, mass spectrometry, and genomics capability. Despite recent challenges
, Agilent still represents a threat to Waters' growth.
Why Waters has potential
In its most recent quarterly conference call, Waters Corporation (NYSE:WAT) executives indicated that they seemed content with the company's overall strategy going forward, with continued solid growth and conservative capital allocation. With its Alliance system providing quality control for makers of generic drugs, demand for generic versions of an increasing number of off-patent drugs should help Waters keep growing in the pharmaceutical segment. Meanwhile, Waters has seen a ramp-up in sales for mass spectrometry systems, encouraging the company as it rolls out advanced systems to maintain its leadership role in the industry. In China, Waters noted demand not only for traditional life-science and industrial instruments but also for equipment to analyze food quality and safety.