What a fantastic six months it’s been for Graham Corporation. Shares of the company have skyrocketed 58.6%, hitting $50.70. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy GHM? Or is this a case of a company fueled by heightened investor enthusiasm? 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. Surging Backlog Locks In Future Sales
We can better understand Engineered Components and Systems companies by analyzing their backlog. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Graham Corporation’s future revenue streams.
Graham Corporation’s backlog punched in at $482.9 million in the latest quarter, and over the last two years, its year-on-year growth averaged 21.7%. This performance was fantastic and shows the company has a robust sales pipeline because it is accumulating more orders than it can fulfill. Its growth also suggests that customers are committing to Graham Corporation for the long term, enhancing the business’s predictability. 
2. Operating Margin Rising, Profits Up
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Graham Corporation’s operating margin rose by 4.4 percentage points over the last five years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 6.2%.
3. 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 full-year EPS grew at an astounding 84% compounded annual growth rate over the last four years, better than the broader industrials sector.
Final Judgment
These are just a few reasons why we're bullish on Graham Corporation, and after the recent surge, the stock trades at 29× forward EV-to-EBITDA (or $50.70 per share). Is now a good time to buy despite the apparent froth? See for yourself in our in-depth research report, it’s free.
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