Waters Corporation (WAT)

Conclusion

Waters Corporation is a US maker of analytical instruments for laboratories, mainly liquid chromatography and mass spectrometry systems, along with chromatography columns, other consumables and thermal analysis instruments. At 476.70 USD on 2026-11-09, the company has a market capitalisation of 46.8 billion USD and an enterprise value of 51.3 billion USD.

The verdict is overvalued. Today's P/E of 476.6x compares with a ten-year median of 30.5x, EV/EBITDA of 45.5x with 20.5x, and price to free cash flow of 160.5x with 34.9x. The DCF gives 32.60 USD per share at a discount rate of 10.64%. The fair value band runs from 88.64 to 132.97 USD with a midpoint of 110.81 USD, a margin of safety of -76.8% at today's price. The fair value from historical multiples is 189.01 USD. The reverse DCF implies growth of 43.4% a year, while revenue grew 6.0% a year over five years and free cash flow per share fell 1.8% a year over the same period.

What holds the case up: revenue grew in 7 of 10 comparable years, the share count fell at a rate of 0.88% a year over five years, and earnings beat expectations in all 8 recent quarters. What would break it: return on invested capital of 1.2% sits against a WACC of 10.0%, interest coverage is 1.6x, net debt to EBITDA is 4.0x, and the operating margin of 5.5% compares with a ten-year median of 28.8%.

Financial health

The colour is red, pulled down by net debt to EBITDA of 4.0x and interest coverage of 1.6x, both assessed bad. Debt to equity is 0.34, and the current and quick ratios are not available in the data. The Altman Z-score is not available because the inputs needed to calculate it are missing. The Altman model was designed for manufacturers, and Waters manufactures instruments, so it would have been a relevant test. The insolvency risk is low, about 0.4% by the estimate of the Ohlson model over one to two years. That estimate shows little near-term distress, but it does not offset a leverage level that leaves little room for weaker earnings. The debt schedule needed to judge refinancing risk is not part of this analysis.

Earnings quality

The colour is yellow. The share count is the main supporting metric, falling at 0.88% a year over five years, which indicates buybacks and assessed good. Free cash flow conversion is 297% on a trailing twelve-month basis but only 78.5% over five years, and it is assessed neutral. The accrual ratio is -0.2%, which points to cash earnings rather than accounting accruals. Stock-based compensation is 1.45% of revenue, and free cash flow after it is 210.1 million USD. The Piotroski score is 4 out of 9. The Beneish M-score is not available in the data. Earnings surprises were positive in all 8 quarters, with an average surprise of 3.8%. Analysts raised the current-year estimate slightly over 90 days, by 0.56%, but cut next year's estimate by 0.17%, with 6 downward revisions against 2 upward in the last 30 days.

Profitability

The colour is red. Gross margin is 49.4% against a ten-year median of 58.7%. The operating margin is 5.5% against a median of 28.8%, and the net margin is 1.8% against a median of 22.9%. Margins have been unstable, with an operating margin stability measure of 3.3%. Return on invested capital is 1.2%, against a WACC of 10.0%, giving a ROIC minus WACC value of -8.9%, which the company's own data labels as destroying value. Its five-year median ROIC was 22.4%, so returns have fallen well below that level. Return on equity is 0.6%. The DuPont split for 2025 shows a net margin of 20.3%, an asset turnover of 0.62 and an equity multiplier of 1.98. Leverage is therefore not inflating return on equity; the low current figure reflects weak profit margins on the trailing basis.

Growth

The colour is green, supported by revenue consistency and the next-year EPS estimate. Revenue compound growth is 2.1% over three years, 6.0% over five years and 4.5% over ten years. EPS compound growth is -2.8% over three years, 5.2% over five years and 6.7% over ten years. Free cash flow per share grew 8.4% a year over three years, fell 1.8% over five years and grew 5.1% over ten years. Revenue grew in 7 of the 10 comparable years. Analysts expect EPS to grow 12.9% next year. The three-year EPS decline shows that recent earnings have fallen even though revenue has kept rising.

Valuation

The colour is red. Against their own ten-year medians, today's multiples sit at a premium: P/E of 476.6x against 30.5x (a premium of 1,464%), EV/EBITDA of 45.5x against 20.5x (122.3%), price to free cash flow of 160.5x against 34.9x (360.4%) and price to sales of 8.3x against 6.8x (22.8%). Price to book is 3.1x against 12.4x, a discount of 75.3%. The DCF gives 32.60 USD per share at a discount rate of 10.64%, with the terminal value making up 48.8% of the total. The fair value band runs from 88.64 to 132.97 USD, with a midpoint of 110.81 USD and a margin of safety of -76.8%. The reverse DCF implies growth of 43.4% a year, against revenue growth of 6.0% and free cash flow per share growth of -1.8% over five years. The fair value is an order-of-magnitude estimate built on fixed assumptions, not a price target. The company pays no dividend in the data, with a forward yield of 0%.

Risks

Net debt to EBITDA of 4.0x means a modest fall in EBITDA would lift leverage further, and interest coverage of 1.6x means the company covers its interest only narrowly, so higher borrowing costs or lower earnings would squeeze cash available for shareholders. A ROIC of 1.2% against a WACC of 10.0% means growth adds little value unless returns recover toward the historical median of 22.4%. The operating margin of 5.5% against a median of 28.8% leaves little buffer if sales slow. The current ratio, quick ratio, Altman Z-score and Beneish M-score are not available, so these checks cannot be made. The analysis has no debt maturity schedule and no revenue by segment, so refinancing risk and the performance of the separate Waters and TA segments cannot be judged. The beta is 1.15, and the risk-free rate is 4.89%, based on the US 10-year yield.