Wabtec is a buy based on strong backlog and recurring revenue, though criticized for low return on capital and expensive multiples.

There's a difference between stock price and business. That's what we're trying to teach here. Guys, we have our third buy , but stay with us because the last sell highlights the same mistake even more clearly.

So, our latest Forbes buy is Wabtec , a company that lacks any glamour.

It makes locomotive and railroad parts. I just laughed because I didn't know what they do, and that actually makes me laugh. Is it boring? Maybe. But you have to look closely.

It has roughly 24,600 locomotives around the world, and the railroads are constantly paying for their upkeep, modernization, and repairs. In fact, more than half of its freight sales now come from this recurring after-sales business .

See the pattern? Just like KLA, it gets paid repeatedly for machines it's already sold. That's the kind of money we like. And even better, its backlog of future orders just hit a record $31 billion, up nearly 42% is spread across new locomotives, upgrades, spare parts, and long-term service agreements . So, it can see years of work ahead.

And its profits jumped more than 21% last quarter with a healthy operating margin of 22%. Guys, my assessment is that it's a bit like the elevator business. Getting into the locomotive world is probably going to be pretty tough .

It's an old business, an old industry stuck in its ways, which is a good thing, and it hires the same company over and over again . So, I think those guys are going to be leaders for a while .

Now , the pessimistic outlook. Railroads are tied to the economy. In a slowdown, railroads ship less and delay building new equipment and buying new equipment. About half of its sales come from overseas, which exposes it to tariffs and global disruptions .

So, let's do the math. Just to remind you , one of the metrics Warren Buffett looks at when analyzing the economy, you know, is his love of owning railroads. He used to say, " I look at how many of our tracks are being filled."

How many vehicles are being filled? "So, this is definitely a sector that goes hand in hand with the economy.

Guys, it's a $50 billion company with $60 billion in debt . So, the total value of the enterprise is about $60 billion, sorry. So, about $10 billion of debt.

And, guys, their free cash flow is only $1.7 billion . So, they're much heavier in debt . But a lot of people would argue that the nature of their business is probably very good.

Now, there's something I do n't like, and that's the really poor return on capital . I don't like that. It means they're not getting a good return on the money invested in the company.

And that's been going on for a while. So, it makes me wonder.

For me, I should be getting a better deal in this company. I should be assuming a much higher rate of return . Now, look at this. Their profit margin over the last 10 years has been 8.1%, 9.6% over the last five years , and 10.6% last year. That's a big jump.

But look at their revenue growth. In general..." Basically, double-digit growth for the past 10 years consistently. Man, I really don't like that. I don't like the return on capital here.

Let's check out their eight pillars. Ah, a lot of their debt doesn't really look like real debt. Most of it is probably related to business liabilities or loans to other people who put down a deposit , because I see the debt levels here are low.

Outstanding equity is low, but again, the return on capital is bad. And their five-year price-to-earnings ratio and five- year price-to-free-cash-flow ratio aren't great. Their one-year price-to-free-cash-flow ratio is 29.

Okay, let's see what the analysts think. The analysts are forecasting earnings growth from 1063 to 1250. Okay, and what about revenue? Guys, this isn't a glamorous company, so I'm going to make some pretty reasonable assumptions.

So, guys, I've done some interesting stuff with this company. Even though the analysts are forecasting good revenue growth, I've assumed rates of 3%, 6%, and 9% over the next 10 years .

For the profit margin, I put 8.5%, 9.5%, and 10.5%, even though it's trending upwards . For free cash flow, I used 10, 11.5%, and 13 because their free cash flow is higher than their profit margin, which I really like .

But for the price-to-earnings ratio, guys, remember their return on equity is low. I put 12, 15, and 18. Because remember, when the return on equity is low, you have to get a better deal on the company.

How do you get a cheaper price in the future? You pay a lower price-to-earnings ratio.

And finally, my rate of return is 9.5 %. So, I hit the analyze button. Guys, the stock is at 290. I have a low of 80 to 90, a high of 190 to 240, and an average of 125 to 150.

Guys, I don't know what they see here in a company they like to buy, but they see something. Maybe my assumptions are just wrong.