AGX - Argan: Favorable Supply/Demand Environment And Improved Capital Allocation

2024-01-31 15:25:52 ET

Summary

• After a decade of underperformance, I think Argan's stock could be at an inflection point as it is set to benefit from a favorable supply/demand environment and better capital allocation.
• High margin growth is especially lucrative for Argan as it would lead to significant cash generation given its lack of capex and inventory requirements.
• I see a path for the stock to hit $78 per share. This includes the sum of the company's operations at about $48/share along with $29/share of cash.

Argan, Inc. ( AGX ) primarily generates revenue by providing EPC services to the power generation sector. The company generally posts lumpy revenue and earnings as their business consists of large projects that don't lead to meaningful recurring revenue. Argan must continually replenish its backlog in order to maintain earnings over time....

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