Of the 100 stocks in Barchart’s Top 100 Stocks to Buy in Monday trading, nine were new entrants in the momentum-focused list.
One of the nine new entrants was Perma-Pipe International (PPIH), a Texas-based manufacturer of high-performance pipe systems used for district heating and cooling for multiple buildings in a neighborhood or district. It also provides PermAlert leak detection systems to identify leaks before they become a significant problem.
The business operates in a competitive arena (heating and cooling), but it is up to the task. Growing quickly--Q1 2025 sales were 36.2% higher than a year earlier--the small-cap stock jumped into the top 100 yesterday in 57th place.
It’s on a roll. The question is whether it has enough momentum and staying power to grow from a $187 million small cap to a mid-cap of $2 billion or more.
Here’s my two cents on the subject.
Climate Change Makes It Attractive
There is no doubt that climate change is a real phenomenon, affecting everything in our world, from insurance coverage to travel delays, and all aspects in between.
The International Chamber of Commerce estimates that climate-related events over the past decade have cost the global economy over $2 trillion. Businesses that help alleviate some of the financial burden of climate change will benefit from this reality.
So, what are the benefits of this for Perma-Pipe? And is it sustainable? Before I try to answer that, it’s crucial to understand how it generates revenue.
The company has a hybrid sales model. It sells through a direct sales force in Canada, India, Egypt, and several countries in the Middle East. In the U.S., it employs both inside and outside sales managers who work with independent sales representatives to sell its products and services. Elsewhere, it uses an agent network to educate potential buyers.
Perma-Pipe has operating facilities in the U.S., Canada, Egypt, India, Saudi Arabia, and the United Arab Emirates. Given the customized nature of its products and services, having facilities near the projects it works on is vital to the success of the relationship.
Although the company’s history dates back to 1909, its modern-day existence began in the 1960s, when Perma-Pipe was first incorporated and began manufacturing its pipe systems in Lebanon, Tennessee. Those facilities still exist today.
Perma-Pipe went public in 1994 as a subsidiary of Chicago-based MFRI Inc., itself spun off from Midwesco Company in 1989. In 2017, MFRI was renamed Perma-Pipe.
Since 2017, its revenues have grown from $105 million to $171 million in the latest 12 months ended April 30. That might not seem like much. However, due to COVID-19, sales took a significant step back in fiscal 2020, dropping to $85 million; they’ve doubled in the past four years.
While the company doesn’t break out sales by market, you can get an idea from the sales breakdown by geography. In fiscal 2024, which ended Jan. 31, 2025, its sales in the MENA (Middle East, North Africa, and India) region were $74.0 million, accounting for 47% of its annual revenue. That’s primarily for oil and gas-related projects. My guess would be the remaining 53% would be for heating and cooling-related revenue.
Therefore, climate change will continue to present the company with opportunities for growth. It becomes a question of what you should pay for this growth.
Is Perma-Pipe Stock Expensive?
The company’s stock gained 161% over the past year and 289% over the past five years, with most of these gains occurring since the beginning of June. There’s a significant possibility that the share price has risen too far, too fast.
In Q1 2025, its earnings per share were $0.61. If we annualize this, it would earn $2.44 in fiscal 2025. Based on a current share price of $22.16 early in Tuesday trading, PPIH trades at 9.1 times the forward EPS projection.
Is this a realistic projection? Probably not.
In fiscal 2024, it earned $1.12 per share, down from $1.30 per share in the prior year. To more than double in 2025 seems improbable despite the 239% year-over-year EPS gain in the first quarter from $0.18 in Q1 2024.
On the other hand, its backlog has grown significantly in the past three quarters, from $75.5 million as of July 31, 2024, to $131.1 million as of April 30. During that time, according to S&P Global Market Intelligence, its trailing 12-month operating income has increased by 26% from $19.9 million as of July 31, 2024, to $25.1 million as of April 30, resulting in an operating margin of 14.7%.
Based on 8.02 million shares outstanding, its net income for fiscal 2025 would have to be $19.58 million to meet the $2.44 a share figure from above. Given that the net margin is approximately half the operating margin, 2025 sales would have to be around $260 million.
It’s a bit of a stretch, even when estimating a 35-40% year-over-year growth in sales.
Fiscal 2024 sales totalled $158.4 million. Assuming sales in 2025 increase by 40%, that would result in annual sales of $221.8 million. At a 7.5% net margin, its earnings for 2025 would be $16.63 million, or $2.07 a share.
While there are no guarantees in life, a forward P/E multiple of 10.7x seems reasonable, even cheap, given the growing backlog.
If you don’t mind a little risk, Perma-Pipe stock’s momentum seems ready to carry on into July and beyond. If you're patient, it might even become a mid-cap over the next 3-5 years.
