Watsco (WSO) has just wrapped up FY 2025 with fourth quarter revenue of US$1.6b and basic EPS of US$1.89, capping a year in which trailing twelve month revenue came in at US$7.2b and EPS at US$13.11. Over recent periods, the company has seen quarterly revenue move from US$1.5b to just over US$2.0b with EPS ranging between roughly US$1.98 and US$4.53. This gives investors a clearer view of how seasonal swings feed through to the bottom line. With net profit margins holding in the mid single digits and edging higher year on year, the latest print points to a business where incremental shifts in profitability are important for the overall story.

See our full analysis for Watsco.

With the headline numbers on the table, the next step is to weigh them against the most common storylines around Watsco to see which narratives the results support and which they call into question.

Margins Steady Around 6.9% Net

• Over the last twelve months Watsco generated about US$7.2b in revenue and US$497.0 million in net income, which works out to a 6.9% net margin compared with 6.5% the year before.
• What stands out for the bullish narrative is that margin resilience is already visible before any future assumptions:
  • Bulls point to the A2L transition touching around 55% of sales and a richer mix of high efficiency systems as drivers for margin expansion, and the move from a 6.5% to 6.9% margin shows the business currently operating in the range they focus on.
  • At the same time, bulls expect margins to reach 8.4% in coming years, so the current 6.9% margin gives some support to their view but also leaves a clear gap that still needs to be closed.

Investors who want to see how these margin trends fit into the optimistic case around regulation and HVAC replacement cycles can check out the full bull and bear breakdown here: 🐂 Watsco Bull Case

Premium P/E Versus 6.1% Revenue Forecast

• The shares trade around US$422.83 on a P/E of 32.3x, compared with a peer average of 20x and an industry average of 24.2x, while revenue is forecast to grow about 6.1% per year and earnings about 4.9% per year.
• Skeptics focus on whether that premium is justified given the growth profile:
  • Bears highlight that the current price sits above a DCF fair value of about US$275.69 and that recent year over year earnings were weaker than the 8.8% five year earnings growth rate, which they see as a sign that the past pace is not a given.
  • They also point out that analysts see earnings growing in the mid single digits annually, so a 32.3x P/E and a price well above the US$275.69 DCF fair value are central to their argument that expectations may be running ahead of the fundamentals.

If you are weighing whether the premium P/E is supported by the more cautious view on growth, it is worth seeing how skeptics frame the downside case in more detail: 🐻 Watsco Bear Case

Seasonal EPS Swings On A US$7.2b Base

• Across FY 2025, quarterly revenue ranged from about US$1.5b to just over US$2.1b and EPS moved between roughly US$1.89 and US$4.53, yet trailing twelve month EPS held near US$13.11 on US$7.2b of revenue.
• Consensus narrative around recurring demand and regulation sits against this pattern of ups and downs:
  • Analysts point to a 10% lift in core HVAC replacement sales and the roll out of A2L products covering around 55% of total sales as drivers of recurring demand that help explain why EPS holds in the low teens across the year despite quarterly swings.
  • At the same time, they flag that tariff proposals and OEM pricing actions could affect the timing of that demand, which fits with the quarterly volatility you see in EPS even as the trailing twelve month figures stay relatively stable.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Watsco on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

If the mixed sentiment in this update leaves you undecided, take a closer look at the numbers yourself and form your own view. Then use our summary of 2 key rewards to see what others are optimistic about.

See What Else Is Out There

The current 32.3x P/E, the price sitting above the DCF fair value of US$275.69, and mid single digit earnings forecasts all point to valuation risk.

If that kind of premium makes you uneasy, it is worth balancing your watchlist with ideas screened for stronger value signals using 56 high quality undervalued stocks right now.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.