Evaluating VRT Stock's Actual Performance
Key Points
Vertiv shares were down for much of the past year, but its one-year returns are currently beating the market.
Thanks to an amazing 2024, Vertiv's stock generated market-crushing returns for longer-term shareholders.
The company's five-year returns are less than its three-year returns, showing the benefit of buying the dip.
Ohio-based Vertiv Holdings (NYSE: VRT) was a sleepy company making electrical and infrastructure components like power converters and server racks for a number of industries. Lately, though, the products it manufactures for data centers have come into focus thanks to the artificial intelligence (AI) boom.
While that's made the company more exciting to investors, it's also made the stock more volatile. Currently more than 10% off its recent highs, has Vertiv stock paid off for its short-term and long-term shareholders?
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One year: Up after a big scare
Investors who bought Vertiv stock a year ago got off to a pleasant start as shares rose 20.8% in January, but for months afterward, the stock was underwater. At one point in April, it was down by 53.2%. A months-long recovery followed, and despite the stock's recent dip, shares are now 40.8% higher than they were a year ago.
That easily bests the S&P 500, which has only returned 13.4% over the past year. But how have longer-term investors fared?
Three years: Wow. Just wow.
Vertiv's shares really began to pop in mid-2023, and they continued their outperformance into 2024. That's boosted the stock's three-year return to an absolutely phenomenal 1,110%. Even though the S&P 500 has done well by historical standards over the last three years, rising 68.3%, it doesn't even come close to matching Vertiv's returns.
If the three-year returns are so good, the five-year returns must be even better, right?
Five years: Still wow, but not as much
Actually, Vertiv's current five-year return isn't as good as its three-year return:
Don't get me wrong: It's still completely crushing the market with an 822.3% return, compared to the S&P 500's five-year return of just 86.7%, but that's almost 300 percentage points less than its three-year return. What happened?
In short, 2022 happened. That year, Vertiv's shares fell off a cliff in February after a disastrous Q4 2021 earnings report, in which the company reported a $3.9 million operating loss compared to a $120 million operating profit the year prior, along with a 95% drop in free cash flow. At one point, the company's share price was down 67% for the year.
Vertiv's three-year returns start from December 2022, meaning they don't suffer from the company's poor early 2022 performance. It's an excellent reminder that sometimes when a stock you own drops in price, the best move an investor can make is to buy the dip. Those who sold their Vertiv shares after 2022's drop lost money, but those who held on -- or better yet, bought more -- have generated market-crushing results.
John Bromels has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.