Watts Water Technologies, Inc. (NYSE:WTS) makes valves, leak protection equipment, water filtration systems and drainage products for homes and commercial buildings. Watts is one of the 10 best stocks to buy according to billionaire Mario Gabelli’s fund.
Why Data Centers Matter So Much
Data centers give Watts a new growth driver because liquid cooling uses more Watts products per megawatt than air cooling does. The company sells valves, cooling products and thermal storage tanks to contractors, equipment makers and data center builders. Data center sales made up 8% of first-half sales, up from about 3% of sales in 2025. Management also doubled its estimate of the data center market it can serve by adding new regions and its thermal storage tanks. See our list of the 10 best water infrastructure stocks to buy as AI data centers strain resources.
The rest of the business gives that growth a steady base. About 60% of Watts’ sales come from repair and replacement work, and that work keeps going when new construction slows. Europe, which was weak last year, grew organically by 9% in the second quarter. Gabelli’s funds have backed Watts for its building efficiency business. See why Gabelli backs Watts.
What Could Slow the Run
The third-quarter forecast shows how fast growth could cool. Organic sales rose 12% in the second quarter, and management guides to 5% to 8% for the third quarter. Some customers moved orders into the second quarter ahead of a software change at Watts’ largest site, and some data center projects shipped early. Data center demand also comes in lumps, so one soft quarter could look weak. Acquisitions pull margins down, and the adjusted operating margin fell 60 basis points to 21% in the second quarter. Tariffs, inflation and the Middle East conflict add costs and cut sales, and management said single-family housing is getting slightly worse. See how margins slipped while sales hit a record.
How the Price Compares With the Market
It trades at a forward P/E of 28.5, which is 50% above the sector median of 19.0 and 14% above its own five-year average of 25.0. The S&P 500’s forward P/E is 19.0, according to FactSet. Analyst consensus has Watts’ earnings per share growing 20% in 2026 and 10.5% in 2027. The market’s earnings grow about 10% a year over the long run, so Watts matches that pace in 2027 at a multiple 50% higher. The PEG ratio, which compares the P/E to growth, is 3.57 against 1.45 for the sector. If earnings grow 10.5% a year, the P/E falls to about 23 in two years and about 21 in three, while the market stays near 19.
The bear case is growth settling near the market’s pace while the stock keeps a P/E near 28. Jim Cramer told a caller last September to hold Watts Water Technologies, Inc. for the long term. See what Cramer said.
While we acknowledge the risk and potential of WTS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than WTS and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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This article is originally published at Insider Monkey.
