Graham Corporation: A Gem In The Russel 2000

2025-05-07 06:15:21 ET

Summary

• Graham Corporation's robust balance sheet, with no debt and $30M net cash, offers financial flexibility and security within the debt-laden Russell 2000 index. Its financial growth is among the small-cap minority.
• Originally a cyclical petrochemical and energy business, it has completely transformed over two decades and is a big beneficiary of key government spending now (Defence and Space).
• Its segments show huge promise over the long term, and in the near term, its backlog is 2x its current revenues.
• Avoiding the highest rating due to minor valuation concerns, but keeping the door open for re-rating this company should its business get turbocharged from here.

Graham Corporation ( GHM ) first popped up on my radar when it was added to the Russell 2000 index ( IWM ) on June 28, 2024, as part of the broader Russell Reconstitution for 2024.

I’ve long viewed the index itself as more of a statistical footnote than an investment signal. After all, the Russell 2000 is littered with debt-laden companies that shuffle sideways more than they surge forward. Case in point, when the company was added to the index, the Russell 2000's net debt to EBITDA was 4.4x (The index itself has been flat for almost 4 years now)...

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