What a time it’s been for Northwest Pipe. In the past six months alone, the company’s stock price has increased by a massive 109%, setting a new 52-week high of $132.18 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Following the strength, is NWPX a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Is Northwest Pipe a Good Business?
Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe (NASDAQ:NWPX) is a manufacturer of pipeline systems for water infrastructure.
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Northwest Pipe’s sales grew at an exceptional 13.6% compounded annual growth rate over the last five years. Its growth surpassed 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.
Northwest Pipe’s EPS grew at 16.3% compounded annual growth rate over the last five years, higher than its 13.6% 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, Northwest Pipe’s margin expanded by 18.3 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. Northwest Pipe’s free cash flow margin for the trailing 12 months was 13.1%.
Final Judgment
These are just a few reasons Northwest Pipe is a high-quality business worth owning, and after the recent surge, the stock trades at 26.8× forward P/E (or $132.18 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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