What Happened?
Shares of industrial fluid and energy systems manufacturer Graham Corporation (NYSE: GHM) fell 22.2% in the morning session after the company reported underwhelming fourth quarter results: its revenue missed and its full-year revenue guidance fell slightly short of Wall Street's estimates. Orders fell significantly, reflecting the lumpiness of large capital projects, particularly in defense, which could impact near-term revenue growth. Backlogs, another leading growth indicator, declined sequentially and relative to the the previous year, suggesting the near-term sales momentum might be weaker. Despite these challenges, Graham Corporation beat analysts' EBITDA and EPS expectations this quarter, partially offsetting the otherwise underwhelming results.
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What The Market Is Telling Us
Graham Corporation’s shares are very volatile and have had 20 moves greater than 5% over the last year. But moves this big are rare even for Graham Corporation and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock gained 19.7% on the news that the company reported strong third-quarter earnings which beat analysts' revenue, EBITDA and EPS expectations. Sales growth was driven by increased demand in the defense and refining markets, as well as the successful execution of new projects. Profitability was strengthened by significant margin improvements, with gross margin increasing to 23.9%, thanks to higher project volumes and a shift toward higher-margin projects. Given the solid performance during the quarter, the company was able to reaffirm full-year sales outlook. Its EBITDA guidance also exceeded Wall Street's estimates. Zooming out, we think this quarter was a very good one.
Graham Corporation is down 9.8% since the beginning of the year, and at $39.80 per share, it is trading 20% below its 52-week high of $49.72 from February 2025. Investors who bought $1,000 worth of Graham Corporation’s shares 5 years ago would now be looking at an investment worth $2,211.
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