Pentair (NYSE:PNR), a leading water solutions company, is making waves in the small-cap manufacturing sector. As of April 25, Pentair has a market capitalization of $14.81 billion and is ranked 3rd among the top small-cap manufacturing stocks that hedge funds are actively buying. In this article, we explore why Pentair is catching the attention of hedge funds and how its performance compares to other stocks in the industry.
Pentair’s Business Segments and Performance
Pentair operates through three primary segments: Flow, Water Solutions, and Pool. The company’s Pool segment has shown strong performance, with a 7% year-over-year sales increase, amounting to $384 million in Q1 2025. This growth is attributed to price increases, higher volume, and the acquisition of G&F Manufacturing in Q4 2024. Pentair expects this positive momentum to continue into Q2 2025, with Pool sales projected to increase in the mid-single digits.
The company’s strategy focuses on driving incremental sales growth through value-based pricing and a commitment to serving its best customers. Pentair is also pursuing transformation initiatives aimed at driving margin expansion across all segments, which could further boost its earnings potential in the coming quarters.
Hedge Funds and Pentair’s Appeal
Pentair has garnered attention from 49 hedge funds, according to Insider Monkey’s Q4 2024 database. This level of institutional interest places Pentair among the top small-cap stocks favored by hedge fund managers. Hedge funds are likely attracted to Pentair’s strong growth prospects, especially in the water solutions and pool equipment segments, which continue to show solid performance despite broader market uncertainties.
Positive Market Sentiment and Challenges
Despite concerns over economic growth and rising policy uncertainty in the manufacturing sector, Pentair has managed to outperform many of its peers. The company’s strong performance, especially in the Pool segment, and its focus on margin expansion initiatives have positioned it well for future growth. However, the broader challenges facing the manufacturing sector, such as rising tariffs, inflation, and slower growth expectations, may affect Pentair’s performance in the longer term.
Comparing Pentair with Other Small-Cap Manufacturing Stocks
Total Sales in the company’s Pool segment increased by 7% year-over-year to $384 million in Q1 2025 due to a combination of price, volume, and the acquisition of G&F Manufacturing made in Q4 2024. The return on sales for the Pool segment expanded by 2% to 32.8%. Pentair anticipates continued positive momentum in the Pool segment.
While Pentair is a promising stock, it faces stiff competition in the small-cap manufacturing space. Many companies in this sector are facing similar challenges, including rising policy uncertainty and a slowdown in capital expenditures. However, Pentair’s growth initiatives and focus on high-value core sales provide a solid foundation for sustained performance. Pentair’s ranking as the 3rd most popular small-cap manufacturing stock among hedge funds speaks to its potential for continued success.
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Conclusion
Pentair (NYSE:PNR) continues to be a top pick for hedge funds, thanks to its strong performance, strategic initiatives, and growth prospects in the water solutions and pool segments. While challenges in the manufacturing sector may pose risks, Pentair’s ability to adapt and innovate positions it as a key player in the small-cap space. As the company continues to focus on margin expansion and incremental growth, it may continue to be an attractive option for hedge funds looking for small-cap manufacturing stocks with strong potential.
