Graham Corporation: Ready to Skyrocket

Graham Corporation (GHM) sells and produces vacuum and heat transfer equipment worldwide. These items are used in a variety of refining and manufacturing processes. GHM truly caters to the global market, with 41% of its sales coming from Asia. Unless you haven't been paying attention to (or simply don't care about) the financial news, you're probably aware that we're in a bit of a global slow down, which isn't necessarily positive for GHM. While their fiscal first quarter this year (their fiscal year ends 31-Mar) showed an approximate 27% dip in sales yoy ($27.6 million dropping to $20.1 million), GHM was able to maintain operating and net margins of 25.0% and 17.5%, respectively. These margins were achieved during a period where even they acknowledge business has been slack . . . imagine what will happen after the downturn recedes.

It is currently priced around $13 after falling from over $50 as recently as 13 months ago. GHM has approximately $4.50 cash per share and minimal long term debt. While earnings may still undergo contraction in the near term, I believe that once we get out of this funk, GHM will perform quite nicely. This is definitely one company that I will keep on my watch list.

Possible Negatives:

1. GHM produces a lot of equipment used in oil refining and if the economy stays down for a long time, oil consumption will not grow that rapidly.
2. The current push for alternative energy may adversely affect their customer base.
3. Their order backlog has dropped to ~$37 million from a high of ~$75.7 million.
4. GHM is a microcap stock and the short-term price may be subject to "trading fluctuations".

Disclosure: As of today, I have no position in GHM. Please collect your own data and come to your own conclusions.

Comments

[whidbey:]

Skyrocket! Add to your Watch list? Which is it? Could we get real for a minute? This stock suffered a hell of a turn down, its cash and potential earnings notwithstanding. This is a message that the market questions its earning ability in what you call...... "a bit of turn-down".

GHM maybe a great stock, but right now it appears to have been abandoned. When and in what circumstances to you see the Rocket taking off? Or is this a one time appearance on SA. I think the latter.

Sep 08 01:23 PM

[Brian O'Fla...:]

interesting, but 20x earnings and 2x book doesn't sound so cheap to me.

Sep 08 07:08 PM

[baduch:]

what if the market never turns around? what if this is the new normal? then what happens to this stock? maybe 13 is the new 50.

Sep 09 12:28 PM