Graham Corporation currently trades at $54.92 and has been a dream stock for shareholders. It’s returned 355% since July 2020, blowing past the S&P 500’s 98.4% gain. The company has also beaten the index over the past six months as its stock price is up 22.9% thanks to its solid quarterly results.
Is it too late to buy GHM? Find out in our full research report, it’s free.
Why Is Graham Corporation a Good Business?
Founded when its founder patented a unique design for a vacuum system used in the sugar refining process, Graham (NYSE: GHM) provides vacuum and heat transfer equipment for the energy, petrochemical, refining, and chemical sectors.
1. Skyrocketing Revenue Shows Strong Momentum
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, Graham Corporation’s 18.3% annualized revenue growth over the last five years was incredible. Its growth beat the average industrials company and shows its offerings resonate with customers.
2. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Graham Corporation’s EPS grew at an astounding 42.6% compounded annual growth rate over the last five years, higher than its 18.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Graham Corporation’s margin expanded by 6.5 percentage points over the last five years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Graham Corporation’s free cash flow margin for the trailing 12 months was 2.6%.
Final Judgment
These are just a few reasons Graham Corporation is a rock-solid business worth owning, and with its shares outperforming the market lately, the stock trades at 46.5× forward P/E (or $54.92 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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