While the S&P 500 is up 13.6% since June 2025, A. O. Smith (currently trading at $68.05 per share) has lagged behind, posting a return of 7.9%. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in A. O. Smith, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is A. O. Smith Not Exciting?
We're sitting this one out for now. Here are three reasons you should be careful with AOS and a stock we'd rather own.
1. Core Business Falling Behind as Demand Plateaus
Investors interested in HVAC and Water Systems companies should track organic revenue in addition to reported revenue. This metric gives visibility into A. O. Smith’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, A. O. Smith failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests A. O. Smith might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect A. O. Smith’s revenue to rise by 2.9%. Although this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.
3. Recent EPS Growth Below Our Standards
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
A. O. Smith’s weak 1.3% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
A. O. Smith’s business quality ultimately falls short of our standards. With its shares underperforming the market lately, the stock trades at 17× forward P/E (or $68.05 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at a top digital advertising platform riding the creator economy.
Stocks We Would Buy Instead of A. O. Smith
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