Value
4.3/10data confidence 100%| Component | Sub-score |
|---|---|
| P/E | 3.9 |
| P/S | 8.8 |
| EV/EBITDA | 0.0 |
| Fwd P/E | 4.2 |
| PEG | 4.9 |
| Analyst target | 4.0 |
- ▸Forward P/E: 29.2x
- ▸PEG: 1.60
WSO · Why this verdict
Why Watsco (WSO) is rated SELL
Updated
Model-generated analysis — not investment advice. Not a registered investment advisor. Past performance does not guarantee future results.
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VerdictSELL
Overall score4.3/10
ConfidenceMEDIUM
MacroNEUTRAL
Thesis pillars
| Pillar | Expectation | Trend |
|---|---|---|
Watsco has missed earnings estimates in three of the last four quarters with an average surprise of negative 3.1%, and analyst earnings estimates have declined 16% over the past 30 days, signaling deteriorating consensus expectations. Earnings | Earnings surprise turns positive and averages above 3% in at least 3 of the next 4 quarters as the miss cycle stabilizes. | →Stable |
| CounterThe most recent quarter produced an 11.4% beat, suggesting the miss streak may already be reversing as underlying HVAC demand strengthens. | ||
A dividend payout ratio of 343% far exceeds earnings coverage, indicating the dividend relies on sources other than net income and is likely unsustainable if earnings do not recover meaningfully. Catalyst breakdown | Payout ratio falls below 150% as earnings growth normalizes and dividend coverage improves over the next 12 months. | →Stable |
| CounterWatsco is a cash-generative distribution business with strong free cash flow quality, and the elevated payout ratio may reflect a one-time earnings trough rather than a structural cash flow problem. | ||
Despite earnings volatility, the business maintains a Piotroski F-Score of 7 out of 9, strong current ratio of 9.7, and solid free cash flow quality score of 7.3 out of 10, reflecting underlying financial health. Quality breakdown | Piotroski F-Score remains at 7 or above and free cash flow quality stays above 6.0 over the next 12 months. | →Stable |
| CounterHigh Piotroski scores can persist even as earnings deteriorate because they measure balance sheet and cash flow stability rather than earnings momentum. | ||
Analyst estimates falling 16% over the past 30 days, combined with no analyst coverage providing a reliable sentiment signal, create a bearish near-term earnings outlook with limited positive catalyst visibility. Sentiment breakdown | Analyst earnings estimate revisions turn positive within the next 2 quarters, with 30-day estimate change rising above 0%. | →Stable |
| CounterForward price-to-earnings of 27.8x reflects the market pricing in an earnings recovery — the stock may already be discounting an estimate trough and subsequent rebound. | ||
Watsco has missed earnings estimates in three of the last four quarters with an average surprise of negative 3.1%, and analyst earnings estimates have declined 16% over the past 30 days, signaling deteriorating consensus expectations.
→StableEarnings
- Expectation
- Earnings surprise turns positive and averages above 3% in at least 3 of the next 4 quarters as the miss cycle stabilizes.
CounterThe most recent quarter produced an 11.4% beat, suggesting the miss streak may already be reversing as underlying HVAC demand strengthens.
A dividend payout ratio of 343% far exceeds earnings coverage, indicating the dividend relies on sources other than net income and is likely unsustainable if earnings do not recover meaningfully.
→StableCatalyst breakdown
- Expectation
- Payout ratio falls below 150% as earnings growth normalizes and dividend coverage improves over the next 12 months.
CounterWatsco is a cash-generative distribution business with strong free cash flow quality, and the elevated payout ratio may reflect a one-time earnings trough rather than a structural cash flow problem.
Despite earnings volatility, the business maintains a Piotroski F-Score of 7 out of 9, strong current ratio of 9.7, and solid free cash flow quality score of 7.3 out of 10, reflecting underlying financial health.
→StableQuality breakdown
- Expectation
- Piotroski F-Score remains at 7 or above and free cash flow quality stays above 6.0 over the next 12 months.
CounterHigh Piotroski scores can persist even as earnings deteriorate because they measure balance sheet and cash flow stability rather than earnings momentum.
Analyst estimates falling 16% over the past 30 days, combined with no analyst coverage providing a reliable sentiment signal, create a bearish near-term earnings outlook with limited positive catalyst visibility.
→StableSentiment breakdown
- Expectation
- Analyst earnings estimate revisions turn positive within the next 2 quarters, with 30-day estimate change rising above 0%.
CounterForward price-to-earnings of 27.8x reflects the market pricing in an earnings recovery — the stock may already be discounting an estimate trough and subsequent rebound.
TrendMatrix Research · core thesis
Engine thesis — one sentence
Watsco is an HVAC distribution business with a strong Piotroski score of 7/9 and solid free cash flow quality, but three consecutive earnings misses, analyst estimates trending down 16% over 30 days, and a dividend payout ratio of 343% create a fragile income and earnings outlook.
Falsifiable statement — pillar-level invalidators below. Engine-derived; not personalized advice.
Per-dimension breakdown
Quality
5.6/10data confidence 100%| Component | Sub-score |
|---|---|
| ROE | 6.2 |
| ROA | 6.3 |
| Gross margin | 1.6 |
| Op margin | 2.7 |
| Net margin | 3.4 |
| Current ratio | 9.7 |
| FCF quality | 7.3 |
| Moat | 5.8 |
| Piotroski F | 7.8 |
- ▸Strong Piotroski F-Score: 7/9
Growth
1.9/10data confidence 67%| Component | Sub-score |
|---|---|
| Rev growth | 2.5 |
| EPS growth | 1.4 |
Momentum
5.3/10data confidence 100%| Component | Sub-score |
|---|---|
| RSI | 5.5 |
| MACD | 10.0 |
| OBV | 1.0 |
| MA position | 6.0 |
| Volume | 3.9 |
- ▸Volume distribution (falling OBV)
- ▸Above 200-MA but MA slope flat
Sentiment
3.9/10data confidence 100%| Component | Sub-score |
|---|---|
| Analyst rating | 5.0 |
| Price target | 5.9 |
| erm sentiment | 0.0 |
- ▸Estimates falling as sentiment proxy (-16.0%)
Insider
5.0/10data confidence 50%| Component | Sub-score |
|---|---|
| materiality | 5.0 |
| holder change | 5.1 |
- ▸No net insider activity — $0 (0.000% of mkt cap)
Peer rank
3.9/10data confidence 80%| Component | Sub-score |
|---|---|
| value rank | 2.6 |
| quality rank | 6.7 |
| growth rank | 1.1 |
Technical
4.9/10data confidence 100%| Component | Sub-score |
|---|---|
| bollinger | 4.1 |
| support resistance | 4.0 |
| 52w position | 6.5 |
Risk (lower is worse)
5.8/10data confidence 100%| Component | Sub-score |
|---|---|
| short interest | 10.0 |
| volatility | 5.1 |
| put call | 0.0 |
| implied vol | 3.2 |
| beta | 7.0 |
| debt equity | 9.4 |
- ▸Elevated put/call: 14.38
- ▸High IV: 61%
Catalyst
2.4/10data confidence 100%| Component | Sub-score |
|---|---|
| erm | 1.0 |
| earnings history | 0.0 |
| earnings timing | 5.0 |
| surprise avg | 0.8 |
| dividend safety | 5.2 |
- ▸Estimates down -16.0% (30d)
- ▸Earnings concerns: 1B/3M
- ▸Dividend: 326.0%
How the verdict was assembled
Engine trigger
Multiple concerning factors. Consider reducing position.
Engine technical detail
verdict_path:
L4:PATH_F_SELLPassed (7)
- MOMENTUM:5.3>=4.5
- INSIDER:OK
- 8K:CLEAN
- NEWS_EVENTS:NONE_RECENT
- EARNINGS_PROXIMITY:23d clear
- SEMI_CYCLE_PEAK:CLEAR
- MATERIALS_CYCLE_PEAK:CLEAR
Failed (1)
- ASYMMETRY:-0.9=NEGATIVE
Warning (1)
- MOMENTUM:5.3<5.5 (soft — BUY_NOW allowed but watch)
Reward-to-Risk
-0.93
Upside
-7.8%
Downside
8.4%
Sizing output
AVOID
SetupRange Bound — RSI 60 mid-range, Bollinger mid-band
EdgeNo clear edge — No clear edge identified
SuitabilityModerate — Balanced profile
Investment implication
The F-path SELL output reflects an overall score of 4.3 below the 5.6 soft trigger — multiple weakening dimensions accumulated rather than a single hard-floor breach. The strongest dimension ( Risk (lower is worse) at 5.8) was not enough to lift the adjusted overall above the threshold. Co-occurring failed gates ( ASYMMETRY:-0.9=NEGATIVE) reinforce the read. Current asymmetry R:R is -0.93 — supplementary context, not the trigger for this path.
The strongest dimensions are Risk (lower is worse) at 5.8, Quality at 5.6, and Momentum at 5.3; the weakest are Growth at 1.9, Catalyst at 2.4, and Peer rank at 3.9. The V9 engine flagged 1 failed gate with 1 warning, producing an asymmetric reward-to-risk of -0.93 and an engine sizing output of AVOID.
What would invalidate the thesis
Falsifying conditions — when triggered, the corresponding pillar's thesis is invalidated.
- P1Earnings Miss Streak
Trip ifEarnings surprise falls below -8% in at least 3 of the next 4 reported quarters, worsening beyond the current -3.1% average.
- P2Dividend Payout Sustainability
Trip ifDividend payout ratio rises above 500%, exceeding the current 343% by more than 150 percentage points.
- P3Operational Quality Resilience
Trip ifPiotroski F-Score falls below 5, declining more than 2 points from the current 7 out of 9.
- P4Declining Estimate Sentiment
Trip if30-day analyst estimate revision falls below -25%, declining more than 9 percentage points beyond the current -16%.