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Can Roper Technologies Maintain Its Acquisition Strategy?

Feb. 03, 2019 2:09 PM ETRoper Technologies, Inc. (ROP)1 Comment
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Wealth Insights


  • Roper Technologies has grown its business and expanded its margins over time. This has been driven by numerous strategic acquisitions.
  • The balance sheet has become stretched, and the company's CROCI has declined. Due to the company's cash flow and pending divestitures, we maintain bullish outlook.
  • The stock has appreciated 10% in January. This has placed shares just out of range of our target price. Roper Technologies is a fantastic company worthy of your watch list.

We recently evaluated Roper Technologies, Inc. (NYSE:ROP) as part of our dividend champion spotlight series. The company that provides niche technology solutions utilizes a growth strategy that strongly features acquisitions. This has helped the company grow at a rapid pace. However, this strategy has cost the business in some ways. The balance sheet has recently stretched, and Roper's cash rate of return on capital has declined. Now that Roper has wrapped up its fiscal year, we evaluate whether these trends are cause for concern, and whether the stock presents an opportunity to investors at the present time.

Roper has built somewhat of a growth engine that feeds itself over the past decade. Management has targeted (and acquired) asset light, cash flow rich assets that operate in synergistic niche markets. These assets boost the overall cash generation of Roper's business, which results in more cash being utilized to help fund the next acquisition.

Source: Roper Technologies, Inc.

Roper has not been afraid of going after "big game" either. Acquisitions over the past 10 years have been as large as the company's $2.8 billion deal for Deltek, or its $1.1 billion deal for PowerPlan.

This strategy has had a sizable impact on the business over the years. The impact of this strategy are two-fold. First (and most obvious), these acquisitions have helped Roper Technologies grow. Roper has selectively built up its presence in high growth niche markets such as RF technology related software, and software used for medical/scientific imaging. These two segments now represent approximately 70% of Roper's overall revenues. Over the past 10 years, revenue has grown at a CAGR of 8.16% and EPS at a CAGR of 13.36%. Free cash flow has roughly tripled over the past decade.

Source: Ycharts

The second and less obvious result of management's efforts have

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Wealth Insights profile picture
I provide straight forward insights on stocks and markets using fundamental analysis and common sense. - Bachelor's degree in Business Administration with a concentration in Financial Analysis. Been investing and following the markets for more than a decade.- Wealth Insights is an investor, and investment author. His content is not geared to anyone's specific investment goals, time horizons, or risk tolerance. Content is for illustrative purposes only, and is not intended to displace advice from a fee based financial adviser. It is not to be taken as investment advice, or influence investor decision making. Accuracy of data is not guaranteed.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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