Over the past six months, Northwest Pipe has been a great trade, beating the S&P 500 by 32.6%. Its stock price has climbed to $74.14, representing a healthy 39.9% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is it too late to buy NWPX? Find out in our full research report, it’s free.

Why Does Northwest Pipe Spark Debate?

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.

Two Things to Like:

1. Skyrocketing Revenue Shows Strong Momentum

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, Northwest Pipe’s sales grew at an excellent 12.5% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers.

2. 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 13.7 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 9.3%.

One Reason to be Careful:

Projected Revenue Growth Shows Limited Upside

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Northwest Pipe’s revenue to stall, a deceleration versus its 12.5% annualized growth for the past five years. This projection doesn't excite us and implies its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

Final Judgment

Northwest Pipe’s merits more than compensate for its flaws, and with its shares beating the market recently, the stock trades at 20.1× forward P/E (or $74.14 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.

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