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About Otis Worldwide

We guess one can say that this business certainly has its fair share of ups and downs.

I mean, wouldn’t it make complete sense if you ran your own elevator company and the finances fluctuated with the price of commodities such as steel and at the same rate, the bedrock of your business was transporting people and objects up and down to their respective destinations each and every day?

If you answered yes, you’re likely one of Otis Worldwide’s competitors.

However, if one’s goal is to not only go up against Otis but to extract their customers from them one by one, you ought to consider something else because in the elevator and escalator businesses, this company is an absolute force to be reckoned with.

Specifically, it is reported that the company has somewhere in the neighborhood of 18 million elevators and escalators in operation globally, apparently moves around two billion people daily, services 2.2 million units and is the largest company in the aforementioned categories and sectors in terms of revenue.

While the company does have some solid competition, such as KONE, Schindler, TK Elevator and a handful of others, Otis clearly takes the cake in more ways than one.

You can likely find the company’s products and services at your local mall, university, apartment complex, office building, hospital, hotel, airport and other venues where people tend to congregate and at the same time, need to move.

Although this company is seasoned (founded in 1853), it just might have more to give.

Now, let’s dive into the company’s core financials and try to figure out whether or not this company’s stock (NYSE: OTIS) is worth considering an investment in for years to come.

Otis’ stock financials

With a current market capitalization of $34.88 billion, a share price just south of $85, a prevailing price-to-earnings (P/E) ratio of 28.50 and an annual dividend of $1.16, the company’s stock appears to be mildly overvalued, given that its price-to-earnings ratio is notably above the fair value benchmark of 20, where it is commonly held that any value greater than 20 indicates that a stock is overvalued.

At first blush, we don’t suspect that we’ll get the substantial growth needed to justify paying a premium for the company’s stock, however, we could certainly be wrong and feel that our time would be best spent researching this for ourselves.

Before doing so, we are glad to see that Otis also issues an annual dividend to its shareholder base, so as to benefit its shareholders that have been and are currently in the stock for the long haul.

Moving right along to the company’s balance sheet, Otis’ executive team is in charge of approximately $9.8 billion in terms of total assets along with around $14.7 billion in total liabilities. 

Although the elevator industry is likely filled with a multitude of both fixed (costs that don’t change with output) and variable (costs that do change with output) costs, this still seems like a fairly total liability-heavy balance sheet structure, which, especially during this frothy, uncertain stage of the national and global economy, isn’t what we would like to see. 

Nevertheless, Otis is a more than established company and can likely get the financial help it needs if things get to the point of becoming unmanageable.

This fact of the matter still doesn’t make us like the company being more than just a tad total liability-heavy.

As it relates to the company’s income statement, Otis’ total annual revenue since 2018 has been as predictable as can be (which is what we initially anticipated to be the case), starting at almost $13 billion in 2018 and reaching its peak at $14.2 billion in 2021.

We’re fine with this as the contracts between Otis and its customers are likely long-term in nature and thus its total, year-over-year (YOY) revenues aren’t likely to fluctuate much at all. Additionally, if these contracts are in fact long-term in nature across the board, this greatly shields Otis from greater overall macroeconomic fluctuations with instances such as COVID-19, inflationary pressures, supply chain complications  and other challenges and headwinds facing practically all industries today.

We initially expected this company and its business model to generate consistent annual revenue figures and that is exactly what we got.

On the basis of the company’s cash flow statement, both Otis’ net income and its total cash from operations have been as stable as can be as well, dipping ever so slightly in 2020 (which was to be expected, 2020 was a bad year for practically every business) but in the grand scheme of things, not much at all, again probably due to the long-term contractual nature of the elevator and escalator industries.

Both the company’s net income and total cash from operations since 2018 have remained in the low-to-high (so specific, right?) $1 billion range.

Otis’ stock fundamentals

We thoroughly expected a leader in the elevator and escalator spaces to maintain a trailing twelve month (TTM) net profit margin that is larger than that of the industry’s average.

We’re happy to find that Otis has passed this test in flying colors.

Primarily, according to TD Ameritrade’s platform, the company’s TTM net profit margin stands at 10% in comparison to the industry’s average of 4.4%, which to us is a material difference and goes to show that prowess in the elevator and escalator businesses produces profits, that is, higher (on a net annual basis) than that of the competition, on average.

Even though this wasn’t all that surprising to us, it is nevertheless affirming that this company has been able to attain a TTM net profit margin more than double than that of the competition.

Lastly, the company also has some stellar TTM returns on assets and investment(s) figures to tout, as also according to TD Ameritrade’s platform, Otis has a TTM return on assets of 12.39% compared to the industry’s average of 8.39% as well as a TTM return on investment of a remarkable 33.55% to the industry’s average of 9.76%.

Although we can’t definitively say why the company’s TTM returns on investment are considerably higher than its TTM returns on assets relative to the industry’s averages, these figures are doubly reaffirming to us in that it implies that even though this company has been operating for over a century, it is still operationally efficient and generating some positive (in both senses of the word) figures as it pertains to TTM net profit margins and returns.

Should you buy Otis stock?

Let’s not beat around the bush.

It is incredibly unlikely that a company such as Otis Worldwide will go out of business anytime soon.

However, while there are certainly a fair share of positives embedded in this company’s operations and underlying financials, we don’t feel as though Otis is a stock to consider buying at the moment, at least, for our personal investment portfolios.

Primarily, the company’s share price is mildly overvalued at the moment and as can be seen though its recently reported total annual revenue figures, there isn’t much in terms of untapped, significant growth to be had in this seasoned business. 

Additionally, the company’s overall balance sheet structure isn’t quite as positive (or total asset-heavy for that matter) as we had initially predicted which doesn’t give us much confidence that this company can stay out of general financial trouble, or if an economic depression ensues, it could become increasingly easy for this company to have to consider filing Chapter 11, a form of bankruptcy (protection).

Given all of this information, we feel most comfortable giving this company’s stock a “sell” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.