Graham Corporation (GHM) Soars to 52-Week High, Time to Cash Out?
Have you been paying attention to shares of Graham (GHM)? Shares have been on the move with the stock up 36% over the past month. The stock hit a new 52-week high of $17.76 in the previous session. Graham has gained 83.9% since the start of the year compared to the 11% move for the Zacks Industrial Products sector and the 12.9% return for the Zacks Manufacturing - General Industrial industry.
What's Driving the Outperformance?
The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on August 7, 2023, Graham reported EPS of $0.25 versus consensus estimate of $-0.04 while it beat the consensus revenue estimate by 19.88%.
For the current fiscal year, Graham is expected to post earnings of $0.15 per share on $180.72 million in revenues. This represents a 400% change in EPS on a 15.02% change in revenues. For the next fiscal year, the company is expected to earn $0.15 per share on $190.52 million in revenues. This represents a year-over-year change of 0% and 5.42%, respectively.
Valuation Metrics
Graham may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
Graham has a Value Score of C. The stock's Growth and Momentum Scores are A and D, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 117.9X current fiscal year EPS estimates, which is a premium to the peer industry average of 19.8X. On a trailing cash flow basis, the stock currently trades at 26X versus its peer group's average of 12.6X. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
Zacks Rank
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Graham currently has a Zacks Rank of #1 (Strong Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Graham meets the list of requirements. Thus, it seems as though Graham shares could have a bit more room to run in the near term.
How Does GHM Stack Up to the Competition?
Shares of GHM have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is Applied Industrial Technologies, Inc. (AIT). AIT has a Zacks Rank of # 2 (Buy) and a Value Score of B, a Growth Score of A, and a Momentum Score of D.
Earnings were strong last quarter. Applied Industrial Technologies, Inc. beat our consensus estimate by 7.80%, and for the current fiscal year, AIT is expected to post earnings of $8.97 per share on revenue of $4.52 billion.
Shares of Applied Industrial Technologies, Inc. have gained 6.8% over the past month, and currently trade at a forward P/E of 17.26X and a P/CF of 15X.
The Manufacturing - General Industrial industry is in the top 21% of all the industries we have in our universe, so it looks like there are some nice tailwinds for GHM and AIT, even beyond their own solid fundamental situation.
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