There are moments when the market merely misjudges a enterprise. Whether or not it’s as a result of short-term headwinds, misunderstood earnings, or simply common market malaise, some shares take a success regardless of delivering strong efficiency. That appears to be the case with Hammond Energy Options (TSX:HPS.A), a long-time producer of dry-type transformers and power-quality merchandise.
After hovering in 2023 and 2024, the inventory is down about 10% from its peak earlier this yr. However that drop doesn’t mirror what’s really occurring beneath the hood. Actually, Hammond is firing on all cylinders and quietly positioning itself for an excellent stronger again half of the yr. Let’s take a better have a look at what’s happening.
Current market strikes
In its first-quarter 2025 outcomes, Hammond reported income of $201 million, which was up 5.6% from the identical interval final yr. That may not be the type of blockbuster progress some buyers count on from a prime industrial title, however it’s greater than respectable given the unsure macro backdrop. What’s extra necessary is that gross margin held regular at 31.5%, and adjusted earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) got here in at $30.9 million, or 15.4% of gross sales. These aren’t indicators of a Canadian inventory dropping its edge.
However the actual standout quantity? Backlog. Hammond closed the quarter with a backlog that was up 17.7% in comparison with the tip of 2024. In plain phrases, demand remains to be coming in robust. That backlog progress is much more spectacular when you think about that the Canadian inventory noticed a decline in customized shipments earlier within the quarter. Quite than sign a drop in enterprise, it means that Hammond is just in a transition interval because it ramps up a brand new manufacturing unit.
CEO Adrian Thomas summed it up clearly within the earnings launch: “We’re happy to report that very same‑quarter gross sales grew 5.6% to $201 million, underscoring the resilience of our enterprise in a interval marked by commerce‑tariff uncertainty… When mixed with our new manufacturing unit coming on-line quicker than deliberate, we will anticipate a beneficial shift in direction of extra customized product shipments within the latter half of the yr.”
Down, however not out
In the meantime, earnings per share (EPS) got here in at $2.20. After adjusting for a spike in share-based compensation, EPS was $1.60, which nonetheless offers Hammond inventory a price-to-earnings ratio of 18 at latest costs. That’s low-cost for a Canadian inventory with this type of margin profile and top-line consistency.
So, why is the inventory down? It could possibly be a mixture of issues. Some buyers may need been hoping for greater income progress. Others could have overreacted to the drop in customized shipments, with out taking the time to learn the CEO’s feedback or have a look at the backlog. And in a market the place synthetic intelligence and tech names are dominating the dialog, a transformer producer in Guelph, Ont. doesn’t precisely seize headlines.
However that’s additionally what makes it such a compelling alternative. Whereas the market’s consideration is elsewhere, Hammond is quietly increasing its capability, holding margins agency, and rising earnings. The infrastructure buildout throughout North America, mixed with the electrification pattern and reshoring of producing, might function long-term tailwinds for years to return. Hammond is among the few corporations that may profit at each stage, from utilities to industrial services to knowledge centres.
Backside line
It’s value noting that the Canadian inventory remains to be founder-influenced, well-run, and disciplined in the case of progress. In contrast to many industrial friends, it hasn’t taken on extreme debt or diluted shareholders unnecessarily.
Briefly, this can be a high-quality enterprise with increasing demand, strong margins, and a robust stability sheet. And proper now, it’s buying and selling like a Canadian inventory with declining earnings and weak prospects. The market obtained this one incorrect.
That doesn’t imply the Canadian inventory will bounce again tomorrow. However for long-term buyers searching for a well-managed industrial firm tied to actual progress tendencies, Hammond appears to be like like a powerful cut price at present ranges. When the following earnings drop or when customized shipments decide again up within the second half, don’t be shocked if the market adjustments its tune. Till then, the low cost is yours to take pleasure in.
