Graham
A 90-year-old maker of vacuum and pumping equipment for refineries that now earns most of its money building parts for U.S. Navy submarines.
Our viewUnattractive Medium conviction
The scores
The profile · 1-4
Growth3/4 →
Growing fast, but a material part was acquired and the growth narrows to one buyer, so not compounding under its own power.
Business quality3/4 →
Navy qualification is a real structural barrier, but the same rules price the work from cost, so it buys duration rather than returns.
Financial position4/4 ↑
No debt, ample undrawn credit and customer deposits funding working capital; trailing free cash flow is negative, but that is growth spending, not a gap.
Execution record2/4 →
Volume delivered and price did not: gross margin missed its guided range, and the margin goal once dated fiscal 2027 now arrives in fiscal 2029.
Per share capture2/4 ↓
Share count up 8.0% in two years and 6.1% in one quarter, a share-funded acquisition, no buyback, and adjusted per-share growth half the total.
Potential2/4 →
The upside is bounded and merely expected: orders yet to convert, a margin plan already slipped once, and somebody else's build rate.
Risk profile3/4 →
One serious dependency, disclosed and survivable - Navy programmes through a few primes, ten customers at 60% of sales. The India bribery referral stays open.
Valuation1/4 ↓
The price needs a margin the company has never earned in ninety years, and is still demanding if it earns it in fiscal 2029.
Evidence quality3/4 →
Everything central is filed and current, corroborated by four outside origins, but the forward half rests on management targets graded rather than verified.
The Verdict
We rate Graham unattractive. It builds custom vacuum and pumping equipment, and most of its money now comes from parts for US Navy submarines, with a record backlog of orders. The business is mixed: sales grew but operating profit fell, because the fastest-growing work is priced by the government from Graham's own costs. The price is stretched, not cheap: it counts on management's three-year margin plan arriving on time, though that plan has slipped once, so buyers pay now for profit not yet earned. The view hinges on margins actually rising, or on Graham showing what the defense work earns. The backlog is real; the earnings are not arriving.
The long caseThe Navy wants submarines built faster and is paying suppliers to get there; Graham must show that defense work earns a rising margin, not just a bigger backlog.
The evidence under this - 8 claims
C01facthigh confidence
Graham designs and builds custom vacuum, heat-transfer and rotating equipment - ejectors, surface condensers, turbopumps, blowers, turbines and, since January 2026, bladeless centrifugal mixers - for U.S. Navy submarines and carriers, refineries and rocket engines.
C02facthigh confidence
Defense was $147.445M of Graham's $245.293M of fiscal 2026 sales, 60%, against 25% of $97.5M in fiscal 2021; total sales rose 16.9% in fiscal 2026.
C03facthigh confidence
Operating income was $15.017M in fiscal 2026 against $15.188M in fiscal 2025 - down $0.17M on $35.397M more revenue.
C10facthigh confidence
Backlog was a record $557.217M at June 30, 2026, 84% defense; 35% to 40% converts to revenue within twelve months and 20% to 25% the year after, with the rest beyond two years and Navy work taking up to six.
C16estimatehigh confidence
At $88.74 on 2026-09-09 the enterprise value of $1.02B is 19.4 times the midpoint of that fiscal 2029 cash profit target and 71.6 times trailing operating profit of $14.205M.
derivedEnterprise value of $1,017.3M from the frozen research pack, against the $52.5M midpoint of the $50M to $55M fiscal 2029 adjusted EBITDA target, and against trailing operating income of $14.205M (fiscal 2026's $15.017M less Q1 fiscal 2026's $4.964M plus Q1 fiscal 2027's $4.152M). Trailing net income on the same construction is $11.817M, $1.01 a diluted share, which is 87.9 times the price. Tangible net worth is $103.763M, $8.85 a share, so the price is 10.0 times it.
against this
- The fiscal 2029 target excludes depreciation and amortisation and share awards, so it is not comparable to an earnings multiple; on the same measure the trailing figure is about 39 times, which makes the forward number look like real progress rather than a full price.
- The multiple is struck on a company whose backlog is at a record and whose end market has a legislated, multi-decade build programme behind it, which is not the usual reason an industrial trades at four times sales.
- Accounts advised by T. Rowe Price paid $83.36 a share for $50M of new stock in April 2026, which is a large, informed buyer taking the other side within 6% of this price.
C15management claimmedium confidence
At its June 2026 investor day management set fiscal 2027 to 2029 targets of 8% to 10% organic revenue growth, fiscal 2029 revenue of $340M to $350M and adjusted cash profit of $50M to $55M, a 14% to 16% margin, with return on invested capital above 20%.
against this
- The same two figures - 8% to 10% organic growth and a low-to-mid-teens adjusted cash profit margin - were stated in the fiscal 2024 annual report as goals for the fiscal year ending March 31, 2027, and in the fiscal 2025 annual report as being on schedule for fiscal 2027. The target has moved out two years while the numbers stayed the same.
- The margin has been flat at about 10.7% for the three years the target has existed.
- Return on invested capital on the company's own vendor-computed basis is 5.9% on trailing twelve months, against the above-20% figure the target names.
C13management claimmedium confidence
Management guides fiscal 2027 to revenue of $285M to $295M, gross margin of 24.5% to 25.5%, selling and administrative costs of 16.5% to 17.5% of sales, a tax rate of 18% to 20% and adjusted cash profit of $35M to $40M.
sourceGraham Corporation Form 10-K, fiscal year ended March 31, 2026primaryGraham Corporation Form 10-Q, quarter ended June 30, 2026primaryGraham Corporation Q1 fiscal 2027 earnings call transcriptprimary
against this
- The identical 24.5% to 25.5% gross margin range was guided for fiscal 2026 in the prior year's annual report and the year came in at 23.5%, below the bottom of it.
- Q1 fiscal 2027 delivered 25.0%, inside the range, but with defense at 58% of sales rather than the higher commercial mix the full-year guide assumes.
- The guide was set in June 2026 and reaffirmed in August with one quarter reported, so most of it is still forecast.
C22inferencemedium confidence
The regime that protects Graham's defense revenue is the same one that prices it, so growing the sole-sourced defense share mechanically lowers gross margin rather than raising it.
derivedC19 and C20 put more than 80% of defense revenue on sole-source awards priced from certified cost data; C21 gives the rule that makes profit a factor applied to allowable cost rather than a scarcity price. C05 and C06 show gross margin falling in each of the last two reported periods with defense mix named as the cause, and management saying it wants a more commercial mix for that reason. C02 puts defense at 60% of sales and rising.
against this
- The company says it is now winning competitive defense solicitations at market prices, and radar and directed-energy cooling work uses commercially available intellectual property that escapes certified cost and pricing entirely. If that share grows, defense growth stops being margin-dilutive.
- Certified cost and pricing does not cap margin at a low level by itself: a supplier that cuts its own costs between negotiations keeps the difference, which is exactly what the automation and welding investment is for.
- Aftermarket work on the installed defense base is also defense revenue and grew 20% in Q1 fiscal 2027; spares and overhauls are not priced the same way as new-build production.
- Curtiss-Wright, on the same programmes with the same buyer, earned a far higher segment margin than Graham's whole-company margin, which shows the regime does not force a low margin on everyone in it.
The company
Refineries, power plants and submarines all need equipment that moves gas, heat and fluid without failing. Graham builds it: steam ejectors and condensers that hold a vacuum in a refinery's distillation tower, and turbopumps, blowers and turbines that move coolant and air inside submarines, torpedoes and rocket engines. Since January 2026 it also makes industrial mixers.
Almost every unit is built to one customer's specification, and 82% of revenue is booked as the work is done rather than on delivery.
The evidence under this - 2 claims
C01facthigh confidence
Graham designs and builds custom vacuum, heat-transfer and rotating equipment - ejectors, surface condensers, turbopumps, blowers, turbines and, since January 2026, bladeless centrifugal mixers - for U.S. Navy submarines and carriers, refineries and rocket engines.
C34facthigh confidence
82% of fiscal 2026 revenue was recognised over time, measured by management's estimate of the total direct labour hours or total cost to be incurred on each contract.
How it makes money
It is paid per engineered order, and the Navy work arrives through the shipbuilders rather than from the government directly. Once installed, the equipment needs overhauls and spares: management says more than $1B of it is in service, and aftermarket sales were $36.9M in fiscal 2026.
The evidence under this - 3 claims
C25facthigh confidence
Between October 2024 and September 2026 Barber-Nichols received $4.65M of federal prime award transactions and Graham Corporation received none, so essentially all of Graham's $147.445M of fiscal 2026 defense revenue arrived through prime contractors rather than direct from the government.
C41management claimlow confidence
Management says more than $1B of Graham equipment is installed around the world, generating recurring overhaul and spares demand.
C40facthigh confidence
Aftermarket sales to the Energy & Process and Defense markets were $9.671M in Q1 fiscal 2027, up 20%, after falling 12% to $36.924M in fiscal 2026 from record fiscal 2025 levels.
Where the money comes from, stream by stream
| Stream | Share of sales (FY2026) | How it earns it |
|---|---|---|
| Defense | 60.1% | Ejectors, condensers, pumps, turbines and blowers for Navy submarines and carriers, sold mostly through the prime shipbuilders under long contracts. |
| Energy & Process | 34.0% | Vacuum and heat-transfer equipment for refineries and chemical plants, plus spares and overhauls, and since January 2026 FlackTek's mixers. |
| Space | 5.9% | Turbopumps and rotating equipment for rocket engines and space programmes, designed and built at Barber-Nichols. |
Who runs it
Matthew Malone has run Graham since June 2025, after years running its Barber-Nichols unit; Christopher Thome has run its finances since 2022. Insiders own little, about 2% between them. Their bonus rides mostly on cash profit and new orders, their long-term shares on sales and return on capital. Nothing pays them for a better profit on each sale, the thing this thesis is waiting for.
The evidence under this - 3 claims
C51facthigh confidence
Matthew Malone, 40, became chief executive in June 2025 after running Barber-Nichols from its 2021 acquisition; Christopher Thome has been chief financial officer since April 2022; William Zmyndak, from ITT, took over Graham Manufacturing in April 2026; Daniel Thoren left as executive chairman in June 2026 and advises to June 2027.
C52facthigh confidence
At June 26, 2026 the 11 current directors and executive officers owned 2.4% of Graham, the chief executive 63,629 shares, under 1%; the retired executive chairman, outside that group, held 2.6%, 300,000 shares of it pledged against an unused credit line. Brandes at 10.6% and BlackRock at 6.5% are the only holders above 5%.
C53facthigh confidence
Graham's annual bonus pays 50% on adjusted cash profit, 20% on bookings and 30% on personal goals; long-term awards are half time-vesting shares and half performance shares on three-year cumulative revenue and the change in return on invested capital. Fiscal 2026 paid the chief executive 138% of target: bookings beat the maximum while adjusted cash profit of $30.8M fell short of the $31.4M target.
against this
- Half of each performance-share grant rides on return on invested capital, which a lower-margin mix does depress, so margin is not wholly unpaid.
- No metric pays on gross margin, the line the thesis turns on, while bookings and revenue reward the volume C22 says is priced from cost.
Why it wins, and who could beat it
Why customers come back
Equipment going onto a nuclear submarine has to be qualified to the Navy's own specifications, and swapping suppliers mid-programme takes years. That is why management says more than 80% of defense revenue is sole-sourced.
The same rules set the price. A sole-source award above $2.5M must show certified costs, and the government computes the profit from its own estimate of those costs. So the barrier buys duration, not margin: growing the sole-sourced share lowers the gross margin rather than raising it.
The evidence under this - 5 claims
C19management claimmedium confidence
Management states that more than 80% of defense revenue is sole-sourced with high barriers to entry.
against this
- The figure appears only in an investor day slide; neither the annual report nor the quarterly report quantifies the sole-source share, so it cannot be checked against a filed table.
- On the Q1 call the chief executive said the company is now also winning competitive solicitations, which by construction reduces the sole-source share over time.
- Curtiss-Wright's own annual report describes supplying the same equipment family to the same buyer on the same three programmes, so being sole-sourced on a given part does not mean being the only qualified supplier on the platform.
C20facthigh confidence
The chief executive said the submarine and aircraft carrier work is sole-sourced and priced under Truth in Negotiations Act certified cost and pricing, while newer competitively won programmes let the company charge market-bearing prices instead.
C21facthigh confidence
Federal rules require certified cost or pricing data on a sole-source award above $2.5M, and the contracting officer computes the profit objective from the government's own estimate of allowable cost.
C22inferencemedium confidence
The regime that protects Graham's defense revenue is the same one that prices it, so growing the sole-sourced defense share mechanically lowers gross margin rather than raising it.
derivedC19 and C20 put more than 80% of defense revenue on sole-source awards priced from certified cost data; C21 gives the rule that makes profit a factor applied to allowable cost rather than a scarcity price. C05 and C06 show gross margin falling in each of the last two reported periods with defense mix named as the cause, and management saying it wants a more commercial mix for that reason. C02 puts defense at 60% of sales and rising.
against this
- The company says it is now winning competitive defense solicitations at market prices, and radar and directed-energy cooling work uses commercially available intellectual property that escapes certified cost and pricing entirely. If that share grows, defense growth stops being margin-dilutive.
- Certified cost and pricing does not cap margin at a low level by itself: a supplier that cuts its own costs between negotiations keeps the difference, which is exactly what the automation and welding investment is for.
- Aftermarket work on the installed defense base is also defense revenue and grew 20% in Q1 fiscal 2027; spares and overhauls are not priced the same way as new-build production.
- Curtiss-Wright, on the same programmes with the same buyer, earned a far higher segment margin than Graham's whole-company margin, which shows the regime does not force a low margin on everyone in it.
C10facthigh confidence
Backlog was a record $557.217M at June 30, 2026, 84% defense; 35% to 40% converts to revenue within twelve months and 20% to 25% the year after, with the rest beyond two years and Navy work taking up to six.
The threat
On submarines, Curtiss-Wright already supplies pumps, motors, turbines and valves to the same three Navy programmes Graham names, from a naval business with $1.50B of sales. In refineries, Ingersoll Rand's mechanical vacuum pumps do an ejector's job without burning steam, so a new or steam-short plant may not buy an ejector at all.
The evidence under this - 2 claims
C31facthigh confidence
Curtiss-Wright's own annual report says it supplies naval propulsion and auxiliary equipment - main coolant pumps, compact motors, generators, steam turbines and valves - to the U.S. Navy on the Virginia class, Columbia class and Ford class programmes, in a segment that was $1.503B of its $3.498B of 2025 sales.
C32facthigh confidence
Ingersoll Rand, which absorbed Gardner Denver, says in its own annual report that it makes one of the broadest ranges of compressor, pump, vacuum and blower products in its markets.
The rivals: CW, IR, and 1 more that is private, in-house or listed abroad.
Who else does this, rival by rival
| Ticker | Rival | How far along | Priced against it |
|---|---|---|---|
| CW | Curtiss-Wright CorporationPriced against it: Same product | On sale | Same product |
| IR | Ingersoll Rand (the Nash liquid-ring vacuum line, formerly Gardner Denver)Priced against it: Small part of it | On sale | Small part of it |
| Private | Hauschild SpeedMixer, Thinky Corporation and Resodyn Acoustic MixersPriced against it: Private | On sale | Private |
How big it could get
How big this could get
The market is measured in submarines. The Pentagon's goal is one Columbia and two Virginia class boats a year; the shipbuilders managed one Virginia a year as of June 2025, half the goal, and the two boats delivered in 2025 were each more than three years late. Graham's $470.5M of defense backlog takes up to six years to convert. Nobody publishes what one hull is worth to a supplier like Graham.
The evidence under this - 3 claims
C24facthigh confidence
The Department of Defense's stated strategic goal is delivering one new Columbia and two new Virginia class submarines every year.
C23facthigh confidence
The U.S. Navy's shipbuilders were working at a one-per-year Virginia class pace as of June 2025, half the Navy's two-per-year goal, and the two boats delivered in 2025 were each more than three years late.
C10facthigh confidence
Backlog was a record $557.217M at June 30, 2026, 84% defense; 35% to 40% converts to revenue within twelve months and 20% to 25% the year after, with the rest beyond two years and Navy work taking up to six.
Who has signed
The Navy orders arrive through the shipbuilders: $101.5M of Virginia class and $75.0M of Columbia class follow-on orders in fiscal 2026. One defense customer is also paying $13.5M toward Graham's new Batavia building.
The evidence under this - 2 claims
C12facthigh confidence
Fiscal 2026 orders were $359.442M, up 55.5%, a book-to-bill of 1.5 times, including $101.5M of Virginia class, $75.0M of Columbia class and $25.5M of MK48 torpedo follow-on orders, while Energy & Process orders fell 6%.
C43facthigh confidence
A defense customer is funding $13.5M of Graham's new 30,000 square foot Batavia manufacturing building and $2.2M of its radiographic testing equipment.
The results
The numbers
Is it growing?Steady
Sales grew 21% over the twelve months to Jun 2026, about the same pace as the 17% in the year to Mar 2026.
Is it profitable?Thin
Operating margin is 5.4%, about where it was (3.7%) in the year to Mar 2024.
Does growth pay off?Flat
Running costs take 18¢ of each sales dollar, up from 17¢ in the year to Mar 2022.
Does it earn good returns?Low
Each dollar put into the business earns 7.6% a year after tax, up from 0.7% in the year to Mar 2023.
How long can it keep going?Long runway
It used $6.12M of cash over the last twelve months, so the $27.0M it holds lasts about 4.4 years at that pace.
Is the balance sheet safe?Net cash
It holds $27.0M of cash against $0 of debt, $27.0M more cash than it owes.
Are shares being diluted?Creeping
The share count rose 11% in 4.3 years, and pay in shares costs 0.9% of sales.
All the numbers
Filed figures from the company's 10-K and 10-Q, read 2026-10-04. Fiscal years end in March.
| Mar 2022 | Mar 2023 | Mar 2024 | Mar 2025 | Mar 2026 | 12 mo to Jun 2026 | |
|---|---|---|---|---|---|---|
| Size and growth | ||||||
| Sales | $123M | $157M | $186M | $210M | $245M | $261M |
| Sales growth | +26% | +28% | +18% | +13% | +17% | +21% |
| Profit | ||||||
| Gross margin | 7.4% | 16% | 22% | 25% | 24% | 23% |
| Operating margin | −9.2% | 0.8% | 3.7% | 7.2% | 6.1% | 5.4% |
| Net margin | −7.1% | 0.2% | 2.5% | 5.8% | 5.1% | 4.5% |
| What growth costs, per sales dollar | ||||||
| Research and development | 3.1% | 2.6% | 2.1% | 1.9% | 2.6% | - |
| Selling, general and admin | 17% | 15% | 17% | 18% | 17% | 17% |
| Pay in shares | 0.7% | 0.5% | 0.7% | 0.9% | 0.9% | 0.9% |
| Capital spending | 1.9% | 2.4% | 5.0% | 9.0% | 6.5% | 4.5% |
| Cash | ||||||
| Cash from operations | −$2.22M | $13.9M | $28.1M | $24.3M | $15.9M | $5.54M |
| Free cash flow | −$4.54M | $10.2M | $18.9M | $5.36M | −$121K | −$6.12M |
| Balance sheet | ||||||
| Cash and short-term investments | $14.7M | $18.3M | $16.9M | $21.6M | $6.58M | $27.0M |
| Debt | $18.4M | $11.7M | $0 | $0 | $13.0M | $0 |
| Net cash | −$3.64M | $6.51M | $16.9M | $21.6M | −$6.42M | $27.0M |
| Returns and shares | ||||||
| Return on capital | - | 0.7% | 5.3% | 11% | 9.3% | 7.6% |
| Shares (diluted) | 10.5M | 10.7M | 10.8M | 11.1M | 11.1M | 11.7M |
What growth costs
Growing has not made Graham much more profitable. Office and selling costs take about the same share of each sales dollar as before, so profit follows what each order earns over its cost, and the Navy work pulls that down.
The evidence under this - 3 claims
C49facthigh confidence
Per sales dollar, selling, general and administrative cost was 16.6 cents in fiscal 2022, 17.4 in fiscal 2024 and 16.9 in fiscal 2026; stock pay stayed under one cent; capital spending rose from 1.9 to 6.5 cents, peaking at 9.0 in fiscal 2025; gross margin rose from 7.4% to 23.5%. Company-funded R&D, booked inside SG&A, was 3.1 and 2.6 cents; customer-funded R&D, the majority, is excluded from it.
C50inferencemedium confidence
Overheads have not fallen per sales dollar as revenue grew a third from fiscal 2024 to 2026, so operating margin moves with gross margin, which the defense mix lowers; growth has not widened the margin by itself.
derivedC49's cost lines per sales dollar, C03's flat operating income on higher revenue, and C22 on how defense work is priced
against this
Selling and administrative cost fell from 17.7 to 16.9 cents in fiscal 2026 (C49), and the fiscal 2027 guide of 16.5% to 17.5% of sales (C13) leaves room for a little more.
C22inferencemedium confidence
The regime that protects Graham's defense revenue is the same one that prices it, so growing the sole-sourced defense share mechanically lowers gross margin rather than raising it.
derivedC19 and C20 put more than 80% of defense revenue on sole-source awards priced from certified cost data; C21 gives the rule that makes profit a factor applied to allowable cost rather than a scarcity price. C05 and C06 show gross margin falling in each of the last two reported periods with defense mix named as the cause, and management saying it wants a more commercial mix for that reason. C02 puts defense at 60% of sales and rising.
against this
- The company says it is now winning competitive defense solicitations at market prices, and radar and directed-energy cooling work uses commercially available intellectual property that escapes certified cost and pricing entirely. If that share grows, defense growth stops being margin-dilutive.
- Certified cost and pricing does not cap margin at a low level by itself: a supplier that cuts its own costs between negotiations keeps the difference, which is exactly what the automation and welding investment is for.
- Aftermarket work on the installed defense base is also defense revenue and grew 20% in Q1 fiscal 2027; spares and overhauls are not priced the same way as new-build production.
- Curtiss-Wright, on the same programmes with the same buyer, earned a far higher segment margin than Graham's whole-company margin, which shows the regime does not force a low margin on everyone in it.
The last report (6 Aug)
Quarter ended June 2026, filed figures.
29%
Sales growth
against the same quarter a year earlier
6.4%
Growth from the quarter before
against 18.3% the quarter before that
6¢
Operating profit
per dollar of sales
The first quarter of fiscal 2027 repeated the pattern. Sales rose 28.6%, 16.8% without the FlackTek mixer business bought in January, yet net income fell 14.9% and earnings per share 21.4%. Gross margin was 25.0%, down from 26.5% a year earlier.
Orders, the thing the story rests on, fell 23.9%, with defense orders down 42%, and the business used $12.7M of cash in the quarter. The full-year forecast now implies growth of only 2% to 9% for the remaining three quarters, leaving the acquisition out.
What it did to the thesisIt weakened the case for the plan the price assumes. Sales grew, but orders fell, margin slipped, profit fell and cash went out. That is why the view is Unattractive: the backlog is real, but the higher earnings management promises are still not arriving.
The quarter in detail
Sales growth from the previous quarter, filed figures.
Earnings per share $0.34 against $0.27 expected; $0.33 as filed, the gap being what the company adds back.
The evidence under this - 6 claims
C08facthigh confidence
Q1 fiscal 2027 revenue rose 28.6% to $71.342M while net income fell 14.9% to $3.912M and diluted earnings per share fell 21.4% to $0.33.
C09facthigh confidence
FlackTek contributed $6.551M of the $15.855M Q1 fiscal 2027 revenue increase, so organic revenue rose 16.8%.
C05facthigh confidence
Gross margin was 23.5% in fiscal 2026 against 25.2% in fiscal 2025, and 25.0% in Q1 fiscal 2027 against 26.5% a year earlier.
C11facthigh confidence
Q1 fiscal 2027 orders were $95.850M against $125.898M a year earlier, down 23.9%, with defense orders down 42% and book-to-bill falling to 1.3 times from 2.3 times.
C35facthigh confidence
Operating cash flow was negative $12.650M in Q1 fiscal 2027 and $15.933M for fiscal 2026, against capital spending guided at $18M to $22M for fiscal 2027 and 7% to 10% of sales thereafter, with maintenance spending of about $2.5M a year.
C14estimatemedium confidence
That full-year guide implies organic revenue growth of roughly 2% to 9% over the remaining three quarters of fiscal 2027, against 16.8% in the first.
derivedGuided revenue of $285M to $295M less the $71.342M reported in Q1 leaves $213.7M to $223.7M for Q2 to Q4, against $189.806M in the same three quarters of fiscal 2026. Removing FlackTek from both sides - $23.4M for the remaining three quarters if it delivers the roughly $30M management expects for the year, or $19.6M at the Q1 run rate, against the $2.767M it contributed to fiscal 2026 - leaves organic growth of about 1.7% to 9.1%.
against this
- Graham's own annual report says the fiscal third quarter is structurally the weakest because revenue is driven by direct labour hours and two holidays fall in it, so a straight-line comparison overstates the implied slowdown.
- The company has beaten its own revenue guidance before: fiscal 2026 was guided at $225M to $235M and came in at $245.293M, above the top of the range.
- Defense revenue moves on the timing of project milestones by the company's own account, so a strong Q1 can be a pull-forward rather than a run rate.
What management did with the money
In April it sold 600,000 new shares for $50.0M and repaid $13.0M of debt; it now has no borrowings. In January it bought FlackTek for $36.2M, with up to $25M more owed if profit targets are met. The share count rose to 11.7 million from 10.8 million two years earlier.
The evidence under this - 3 claims
C17facthigh confidence
Graham sold 600,000 new shares at $83.36 in April 2026 for $50.0M gross, repaying $13.0M of debt; the diluted share count rose from 11,138,000 in fiscal 2026 to 11,710,000 in Q1 fiscal 2027, and from 10,844,000 two years earlier.
C42facthigh confidence
At June 30, 2026 Graham held $26.953M of cash with no borrowings, $74.480M available on an $80M revolving facility, and $113.135M of customer deposits funding its working capital.
C29facthigh confidence
FlackTek was bought in January 2026 for $36.205M - $24.889M of cash and 76,000 shares valued at $5.678M - plus up to $25M of cash earn-outs over fiscal 2027 to 2030 tied to rising adjusted cash profit targets.
The price, and where we disagree
In short. Priced for perfection. The price pays for management's whole three-year plan arriving on time, from a business that keeps no more profit from each dollar of sales than before, though its sales grew.
Share price
$88.74
close,
Price for each $1 of yearly profit
83.7
its 6-year normal 64.3
Company value for each $1 of cash profit
44.2
its 6-year normal 17.1
The shares returned 85.8% over the past year on a record backlog and a three-year plan. That plan has already moved once: the growth and margin goal first set for the year to March 2027 now points to fiscal 2029.
The next check is the second-quarter results on 6 November, against a full-year gross margin forecast of 24.5% to 25.5%. Meanwhile the shares sold short have nearly doubled since May, to 6.7% of those available to trade.
The evidence under this - 4 claims
C46facthigh confidence
The 8% to 10% organic growth and low-to-mid-teens cash profit margin goal was set for the fiscal year ending March 2027 in the fiscal 2024 annual report and restated as on schedule in the fiscal 2025 one; the June 2026 investor day now dates the same two figures to fiscal 2029.
C15management claimmedium confidence
At its June 2026 investor day management set fiscal 2027 to 2029 targets of 8% to 10% organic revenue growth, fiscal 2029 revenue of $340M to $350M and adjusted cash profit of $50M to $55M, a 14% to 16% margin, with return on invested capital above 20%.
against this
- The same two figures - 8% to 10% organic growth and a low-to-mid-teens adjusted cash profit margin - were stated in the fiscal 2024 annual report as goals for the fiscal year ending March 31, 2027, and in the fiscal 2025 annual report as being on schedule for fiscal 2027. The target has moved out two years while the numbers stayed the same.
- The margin has been flat at about 10.7% for the three years the target has existed.
- Return on invested capital on the company's own vendor-computed basis is 5.9% on trailing twelve months, against the above-20% figure the target names.
C13management claimmedium confidence
Management guides fiscal 2027 to revenue of $285M to $295M, gross margin of 24.5% to 25.5%, selling and administrative costs of 16.5% to 17.5% of sales, a tax rate of 18% to 20% and adjusted cash profit of $35M to $40M.
sourceGraham Corporation Form 10-K, fiscal year ended March 31, 2026primaryGraham Corporation Form 10-Q, quarter ended June 30, 2026primaryGraham Corporation Q1 fiscal 2027 earnings call transcriptprimary
against this
- The identical 24.5% to 25.5% gross margin range was guided for fiscal 2026 in the prior year's annual report and the year came in at 23.5%, below the bottom of it.
- Q1 fiscal 2027 delivered 25.0%, inside the range, but with defense at 58% of sales rather than the higher commercial mix the full-year guide assumes.
- The guide was set in June 2026 and reaffirmed in August with one quarter reported, so most of it is still forecast.
C36factmedium confidence
Short interest was 745,860 shares at the August 14, 2026 settlement, 6.7% of the free float, having risen from 408,659 shares at the May 29 settlement.
How we read the multiple
Counting debt, a buyer pays about 72 times last year's operating profit, what is left from sales after running costs. Management's 2029 plan makes it look cheaper, but only on paper:
- If cash profit hits the $50M to $55M target in full, the price is about 19 times it.
- That target is before about $11M of depreciation and $6M of share awards and deal costs.
- So roughly a third of it never reaches an owner, and profit on each dollar of sales has stayed near 11 cents for three years.
Against its own history. Dearer than its own normal. The business is bigger than it was, but it keeps no more profit from each dollar of sales.
The evidence under this - 3 claims
C16estimatehigh confidence
At $88.74 on 2026-09-09 the enterprise value of $1.02B is 19.4 times the midpoint of that fiscal 2029 cash profit target and 71.6 times trailing operating profit of $14.205M.
derivedEnterprise value of $1,017.3M from the frozen research pack, against the $52.5M midpoint of the $50M to $55M fiscal 2029 adjusted EBITDA target, and against trailing operating income of $14.205M (fiscal 2026's $15.017M less Q1 fiscal 2026's $4.964M plus Q1 fiscal 2027's $4.152M). Trailing net income on the same construction is $11.817M, $1.01 a diluted share, which is 87.9 times the price. Tangible net worth is $103.763M, $8.85 a share, so the price is 10.0 times it.
against this
- The fiscal 2029 target excludes depreciation and amortisation and share awards, so it is not comparable to an earnings multiple; on the same measure the trailing figure is about 39 times, which makes the forward number look like real progress rather than a full price.
- The multiple is struck on a company whose backlog is at a record and whose end market has a legislated, multi-decade build programme behind it, which is not the usual reason an industrial trades at four times sales.
- Accounts advised by T. Rowe Price paid $83.36 a share for $50M of new stock in April 2026, which is a large, informed buyer taking the other side within 6% of this price.
C15management claimmedium confidence
At its June 2026 investor day management set fiscal 2027 to 2029 targets of 8% to 10% organic revenue growth, fiscal 2029 revenue of $340M to $350M and adjusted cash profit of $50M to $55M, a 14% to 16% margin, with return on invested capital above 20%.
against this
- The same two figures - 8% to 10% organic growth and a low-to-mid-teens adjusted cash profit margin - were stated in the fiscal 2024 annual report as goals for the fiscal year ending March 31, 2027, and in the fiscal 2025 annual report as being on schedule for fiscal 2027. The target has moved out two years while the numbers stayed the same.
- The margin has been flat at about 10.7% for the three years the target has existed.
- Return on invested capital on the company's own vendor-computed basis is 5.9% on trailing twelve months, against the above-20% figure the target names.
C07facthigh confidence
Adjusted cash profit margin was 10.6% in fiscal 2026, 10.7% in fiscal 2025 and 10.7% in fiscal 2024, while revenue grew from $185.533M to $245.293M.
Priced against its rivals
Only Curtiss-Wright sells the same thing to the same buyers as a large part of what it does. Ingersoll Rand does too, but as a small part of a much bigger company, so its price says little about this one. A price comparison needs at least two, so the price is judged against its own history instead.
Also checked and set aside: AMETEK (a substitute, not the same product); Kratos Defense & Security Solutions (a substitute, not the same product); Xylem (a substitute, not the same product); Honeywell International (a substitute, not the same product); L3Harris Technologies (a substitute, not the same product).
Private or foreign rivals that cannot be priced: Precision Castparts Corp. (PCC), Triumph Group (Triumph Aerospace), DC Fabricators, Croll Reynolds Company, Inc., Schutte & Koerting, Korting Hannover AG, GEA Wiegand GmbH, Edwards, Ltd., Concepts NREC, Collins Aerospace, Nikkiso Co., Ltd.; Donghwa Entec Co., Ltd.; Hangzhou Turbine Equipment Co., Ltd.; Oeltechnik GmbH; KEMCO; Chem Process Systems; Mazda (India), Holtec; Maarky Thermal Systems; Thermal Engineering International (USA), Inc., Hauschild SpeedMixer; Mazerustar Planetary Mixers; Thinky Corporation; Resodyn Acoustic Mixers, Westlake.
Where we disagree with the market
The market believes
A record backlog and a Navy build-up make the margin plan look like earnings already booked.
We believe
The backlog is real, but the earnings are not arriving, because the fastest-growing work is priced from cost.
The story is told in backlog and adjusted cash profit. The filed operating line fell in fiscal 2026, and earnings per share rose only because the tax rate fell: at the old rate they would have been about $1.05, down 5.2%, instead of $1.12.
We are wrong if gross margin reaches the guided 24.5% to 25.5% in fiscal 2027 while defense stays above half of sales.
What analysts say, and the evidence
The evidence under this - 5 claims
C03facthigh confidence
Operating income was $15.017M in fiscal 2026 against $15.188M in fiscal 2025 - down $0.17M on $35.397M more revenue.
C04estimatehigh confidence
At fiscal 2025's 20.6% effective tax rate, fiscal 2026 diluted earnings per share would have been about $1.05, down 5.2%, instead of the reported $1.12.
derivedPre-tax income of $14.760M taxed at fiscal 2025's effective rate of 20.62% ($3.177M on $15.407M) gives $11.716M of net income, over 11,138,000 diluted shares. Reported net income was $12.500M and $1.12 a share on an effective rate of 15.31%.
against this
- The lower rate was not a one-off trick: the 10-K attributes it to higher research and development credits and to discrete benefits on vesting restricted stock, both of which can recur while the share price is up.
- The One Big Beautiful Bill Act pushed the fiscal 2026 rate up by about 200 basis points and is expected to deliver about $8M of cash tax savings over two years, so the cash effect runs the other way to the reported rate.
- Management guides fiscal 2027 to 18% to 20%, so it is not presenting the low rate as sustainable.
C05facthigh confidence
Gross margin was 23.5% in fiscal 2026 against 25.2% in fiscal 2025, and 25.0% in Q1 fiscal 2027 against 26.5% a year earlier.
C13management claimmedium confidence
Management guides fiscal 2027 to revenue of $285M to $295M, gross margin of 24.5% to 25.5%, selling and administrative costs of 16.5% to 17.5% of sales, a tax rate of 18% to 20% and adjusted cash profit of $35M to $40M.
sourceGraham Corporation Form 10-K, fiscal year ended March 31, 2026primaryGraham Corporation Form 10-Q, quarter ended June 30, 2026primaryGraham Corporation Q1 fiscal 2027 earnings call transcriptprimary
against this
- The identical 24.5% to 25.5% gross margin range was guided for fiscal 2026 in the prior year's annual report and the year came in at 23.5%, below the bottom of it.
- Q1 fiscal 2027 delivered 25.0%, inside the range, but with defense at 58% of sales rather than the higher commercial mix the full-year guide assumes.
- The guide was set in June 2026 and reaffirmed in August with one quarter reported, so most of it is still forecast.
C02facthigh confidence
Defense was $147.445M of Graham's $245.293M of fiscal 2026 sales, 60%, against 25% of $97.5M in fiscal 2021; total sales rose 16.9% in fiscal 2026.
What could go wrong, and how we would know
The risks
- Defense work earns less. Management itself says defense carries a lower margin than the commercial business, and defense is now 60% of sales.
- Shipyards running late. The shipbuilders deliver half the boats the Navy wants, and their suppliers face worker and factory problems of their own.
- A deal that could disappoint. FlackTek depends on a newly launched mixer platform, and Graham added a risk factor warning its failure could force a write-down.
- An open bribery investigation. Graham reported misconduct at its India unit to the Justice Department and the SEC; the matter is unresolved.
The evidence under this - 6 claims
C06management claimhigh confidence
Management says defense carries a lower profit margin than the commercial portfolios and that it wants to move nearer a 50-50 mix over time.
against this
- On the same call the chief executive said newly won competitive defense solicitations allow healthier margins and market-bearing prices, so not all defense work is low margin.
- The company also attributes part of each gross-margin decline to material receipts rather than to defense mix alone, which is a timing effect that reverses.
C02facthigh confidence
Defense was $147.445M of Graham's $245.293M of fiscal 2026 sales, 60%, against 25% of $97.5M in fiscal 2021; total sales rose 16.9% in fiscal 2026.
C23facthigh confidence
The U.S. Navy's shipbuilders were working at a one-per-year Virginia class pace as of June 2025, half the Navy's two-per-year goal, and the two boats delivered in 2025 were each more than three years late.
C44facthigh confidence
GAO reports that suppliers to the Navy's shipbuilders have workforce and infrastructure problems that could challenge their ability to produce quality materials on time.
C28facthigh confidence
Graham added a risk factor in fiscal 2026 saying the success of the FlackTek acquisition depends on the recently launched MEGA platform, whose underperformance could cause impairment of intangible assets or goodwill.
C38facthigh confidence
Graham has voluntarily reported to Indian authorities, the U.S. Department of Justice and the SEC the findings of an investigation into misconduct at its India subsidiary, and the matter remains unresolved.
What we still do not know
- What the defense work actually earns. No filing splits the margin between defense and commercial work.
- How much defense revenue is won in open competition, where Graham can charge market prices, rather than priced from its costs.
The evidence under this - 3 claims
C06management claimhigh confidence
Management says defense carries a lower profit margin than the commercial portfolios and that it wants to move nearer a 50-50 mix over time.
against this
- On the same call the chief executive said newly won competitive defense solicitations allow healthier margins and market-bearing prices, so not all defense work is low margin.
- The company also attributes part of each gross-margin decline to material receipts rather than to defense mix alone, which is a timing effect that reverses.
C22inferencemedium confidence
The regime that protects Graham's defense revenue is the same one that prices it, so growing the sole-sourced defense share mechanically lowers gross margin rather than raising it.
derivedC19 and C20 put more than 80% of defense revenue on sole-source awards priced from certified cost data; C21 gives the rule that makes profit a factor applied to allowable cost rather than a scarcity price. C05 and C06 show gross margin falling in each of the last two reported periods with defense mix named as the cause, and management saying it wants a more commercial mix for that reason. C02 puts defense at 60% of sales and rising.
against this
- The company says it is now winning competitive defense solicitations at market prices, and radar and directed-energy cooling work uses commercially available intellectual property that escapes certified cost and pricing entirely. If that share grows, defense growth stops being margin-dilutive.
- Certified cost and pricing does not cap margin at a low level by itself: a supplier that cuts its own costs between negotiations keeps the difference, which is exactly what the automation and welding investment is for.
- Aftermarket work on the installed defense base is also defense revenue and grew 20% in Q1 fiscal 2027; spares and overhauls are not priced the same way as new-build production.
- Curtiss-Wright, on the same programmes with the same buyer, earned a far higher segment margin than Graham's whole-company margin, which shows the regime does not force a low margin on everyone in it.
C20facthigh confidence
The chief executive said the submarine and aircraft carrier work is sole-sourced and priced under Truth in Negotiations Act certified cost and pricing, while newer competitively won programmes let the company charge market-bearing prices instead.
What would change our view
- Unattractive→AttractiveThe plan starts arriving, at a price short of assuming it
It needs all of:
- ○Operating profit passes $22M in fiscal 2027 on sales above $285M, and the cash profit margin tops 13% two years running.checked at the next results, due by 6 Nov
- ○The business is valued at about 12 times the fiscal 2029 cash profit target, down from 19.4.about ≈$54.89 today, 38% below the last close
- Reopens the researchThe defense margin is finally disclosed
It needs:
- ○Graham discloses what the defense work earns, and it matches or beats the commercial business.checked at the next results, due by 6 Nov
We would also be wrong if
- Gross margin lands inside the guided 24.5% to 25.5% for fiscal 2027.
- The share count is flat or lower two years from now.
What is coming
- 6 November 2026 Q2 fiscal 2027 results: Whether gross margin holds at or above the guided 24.5% with defense above half of sales, and whether orders recover from Q1's 23.9% fall.
Every dated event ahead
- 6 November 2026 Q2 fiscal 2027 results: Whether gross margin holds at or above the guided 24.5% with defense above half of sales, and whether orders recover from Q1's 23.9% fall.
- February 2027 Q3 fiscal 2027 results: How much of the full-year revenue guide lands organically after FlackTek laps, and whether selling costs stay inside 16.5% to 17.5% of sales.
- June 2027 Fiscal 2027 year end, results and 10-K: The first FlackTek earn-out year against its roughly $3M cash-profit plan, the year's margin against guide, and the first step of the fiscal 2029 targets.
Since we wrote this
Written
9 Sep
Price the thesis read
$88.74
8 Sep
- 5 OctThesis reviewThe long case now sits under the verdictAfter the five-name pilot, the owner asked for the long case on every thesis.
- 4 OctThesis reviewOwner's checklist: revenue streams, cost of growth, management, catalystsThe owner's checklist found the method silent on who runs the company, what growth costs, where the money comes from and what is dated ahead; this pass fills those four blocks from the proxy and filings.
- 26 SepThesis reviewNext test corrected: Q1's 25.0% margin already broke the streakThe pressure branch spoke of a fifth straight quarter of gross margin below 24%, but Q1 fiscal 2027 came in at 25.0%. A miss now means falling back below 24%. View held.
- 9 SepThesis writtenUnattractive, medium convictionWritten a month after first-quarter results showed sales up 28.6% and earnings per share down 21.4%, with the shares up 85.8% in a year.
Also checked 2 times with nothing new to act on.
Sources 18
Where this came from
Sources - 18
Every claim above cites one of these, or states the reasoning that derived it. The quote is frozen at the date it was read: a link can rot, and an agent fetch returns a reading of a page rather than the page. Backs counts the whole claim ledger, so it can name a claim this page does not surface.
- S01primarycompany filing2026-06-08the income statement for fiscal 2026, 2025 and 2024; sales, orders and backlog by market; the competition table; customer concentration; the fiscal 2027 outlook; the acquisition terms; the India investigationbacksC01C02C03C05C07C10C12C13C17C25C26C28C29C33C34C35C38C40C43C45C48C49C54
- S02primarycompany filing2026-08-06the Q1 fiscal 2027 income statement, balance sheet and cash flow; orders and backlog; the FlackTek revenue contribution; the April 2026 share issue; the diluted share countbacksC01C05C08C09C10C11C13C17C18C27C29C35C38C40C42C48
- S03primarytranscript2026-08-06Graham Corporation Q1 fiscal 2027 earnings call transcriptdata/cache/transcripts/GHM-2027Q1.json (FMP earning-call-transcript, quarter label 2027Q1, call held 2026-08-06)management on why defense carries the lower margin and on wanting a 50-50 mix; the statement that submarine and carrier work is sole-sourced under certified cost and pricing; three analysts' questions on space, orders and margin
So the lion's share is in the submarine and aircraft carrier. That's sole sourced and under TINA cost and pricing. And then the other up-and-comings we've seen the ability to differentiate and get higher margin.
backsC06C13C20C41 - S04primarycompany filing2026-06-18the three-year framework to fiscal 2029; the sole-source share of defense revenue; the adjusted cash profit margin by year back to fiscal 2021; FlackTek's expected revenue and profit; the customer grants to datebacksC02C07C15C19C30C41C46
- S05primarycompany filing2026-06-08management's framing of the fiscal 2026 result alongside the annual reportread, but no claim rests on it
- S06primarygovernment data2026-04-22GAO-26-109068, Navy and Coast Guard Shipbuilding: A Disciplined, Strategy-Driven Approach Is Needed to Achieve Ambitious Goals U.S. Government Accountability Officethe actual submarine build rate against the Navy's goal, the one-Columbia-and-two-Virginia target, and the finding that suppliers' workforce and infrastructure problems threaten on-time quality delivery
according to the latest data provided by the Navy, the shipbuilders were working at a one-per-year-pace as of June 2025-half the rate of the Navy's two per year goal. While the Navy reported accepting delivery of two Virginia class submarines in 2025, both were over 3 years late.
backsC23C24C44 - S07primarygovernment data2025-03-11GAO-25-108136, Navy Shipbuilding: A Generational Imperative for Systemic Change U.S. Government Accountability Officethe same shortfall measured a year earlier, so the gap is a standing condition rather than one bad year
In June 2024, we found that the Virginia class submarine program's rate of production to meet fleet needs remains at 60 percent of the planned rate of two submarines per year.
read, but no claim rests on it - S08primaryregulator2026-09-09Federal Acquisition Regulation 15.403-4 and 15.404-4 (acquisition.gov) FAR Council (GSA, DoD and NASA)the rule the chief executive was describing: above $2.5M a sole-source price is built from the supplier's certified costs, and the profit objective is computed from the government's estimate of allowable cost
The threshold for obtaining certified cost or pricing data is $950,000 for prime contracts awarded before July 1, 2018, and $2.5 million for prime contracts awarded on or after July 1, 2018. ... Contracting officers shall use the Government prenegotiation cost objective amounts as the basis for calculating the profit or fee prenegotiation objective.
backsC21 - S09primarycompany filing2026-02-12Curtiss-Wright Corporation Form 10-K, year ended December 31, 2025 Curtiss-Wright Corporationa listed competitor's own description of supplying pumps, motors, generators, turbines and valves to the Navy on the Virginia, Columbia and Ford-class programmes, and the size of that businessbacksC31
- S10primarycompany filing2026-02-17Ingersoll Rand Inc. Form 10-K, year ended December 31, 2025 Ingersoll Rand Inc.the successor to Gardner Denver describing its own vacuum and blower range, the competing product on the Energy & Process sidebacksC32
- S11primarygovernment data2026-08-28EIA weekly series WPULEUS3, U.S. Percent Utilization of Refinery Operable Capacity U.S. Energy Information Administrationan outside check on management's claim that North American refineries run near capacity, which is the demand behind the aftermarket business
series-description: U.S. Percent Utilization of Refinery Operable Capacity, period 2026-08-28, value 98, units %
backsC39 - S12primarygovernment data2026-09-09USAspending.gov federal award recipient search, October 2024 to September 2026 U.S. Department of the Treasury (USAspending.gov)the fact that Graham holds almost no federal prime awards of its own, so its defense revenue reaches it through prime contractors rather than direct from the Navy
results: [{amount: 4650469.01, name: BARBER-NICHOLS, LLC, uei: K4GJKMQD4961}]
backsC25 - S13primaryvendor data2026-09-09Graham Corporation research pack, frozen 2026-09-09price, returns, the twenty-day range, the analyst split, the FINRA short-interest series, the Form 4 transaction codes, the vendor multiple series and the filed competitor cohort resultbacksC33C36C37
- S14primarycompany filing2025-06-09the fiscal 2026 outlook as originally issued, and the fiscal 2027 date then attached to the margin goal; the risk factors this year's set is measured againstbacksC28C45C46C49
- S15primarycompany filing2024-06-07the first statement of the 8% to 10% growth and low-to-mid-teens margin goal, with fiscal 2027 as its datebacksC46C49C54
- S16primarycompany filing2026-06-17the completion of the chief executive succession and the retirement of the executive chairmanbacksC47C51
- S17primarycompany filing2026-08-06the announcement of the MK19 Mod 2 air turbine pump award, which with the MK48 option year totalled about $43M, and management's framing of the quarterread, but no claim rests on it
- S18primarycompany filing2026-07-14executive officers and their tenure, beneficial ownership as of June 26, 2026, the cash bonus and long-term award metrics, goals and fiscal 2026 payouts, the leadership transitionbacksC51C52C53