CECO Environmental (CECO)

Environmental solutions provider CECO Environmental (NASDAQ:CECO) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 45.8% year on year to $197.6 million. On the other hand, the company’s full-year revenue guidance of $750 million at the midpoint came in 1.1% below analysts’ estimates. Its non-GAAP profit of $0.26 per share was 4% above analysts’ consensus estimates.

Company Overview

With roots dating back to 1869 and a focus on creating cleaner industrial operations, CECO Environmental (NASDAQ:CECO) provides technology and expertise that helps industrial companies reduce emissions, treat water, and improve energy efficiency across various sectors.

Growing regulatory pressure on environmental compliance and increasing corporate ESG commitments should buoy the sector for years to come. On the other hand, environmental regulations continue to evolve, and this may require costly upgrades, volatility in commodity waste and recycling markets, and labor shortages in industrial services. As for digitization, a theme that is impacting nearly every industry, the increasing use of data, analytics, and automation will give rise to improved efficiency of operations. Conversely, though, the benefits of digitization also come with challenges of integrating new technologies into legacy systems.

CECO Environmental competes with other environmental technology and industrial solutions providers including Donaldson Company (NYSE:DCI), Evoqua Water Technologies (now part of Xylem, NYSE:XYL), Fuel Tech (NASDAQ:FTEK), and privately-held companies like Dürr Environmental and Babcock & Wilcox Environmental.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $718.3 million in revenue over the past 12 months, CECO Environmental is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, CECO Environmental grew its sales at an incredible 17.4% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows CECO Environmental’s demand was higher than many business services companies.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. CECO Environmental’s annualized revenue growth of 19% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, CECO Environmental reported magnificent year-on-year revenue growth of 45.8%, and its $197.6 million of revenue beat Wall Street’s estimates by 3.6%.

Looking ahead, sell-side analysts expect revenue to grow 14.6% over the next 12 months, a deceleration versus the last two years. Still, this projection is admirable and indicates the market sees success for its products and services.

CECO Environmental was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.8% was weak for a business services business.

On the plus side, CECO Environmental’s operating margin rose by 11.4 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q3, CECO Environmental generated an operating margin profit margin of 4.8%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

CECO Environmental’s EPS grew at an unimpressive 5.4% compounded annual growth rate over the last five years, lower than its 17.4% annualized revenue growth. However, its operating margin actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

We can take a deeper look into CECO Environmental’s earnings to better understand the drivers of its performance. A five-year view shows CECO Environmental has diluted its shareholders, growing its share count by 2.9%. This dilution overshadowed its increased operational efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For CECO Environmental, its two-year annual EPS growth of 13.1% was higher than its five-year trend. This acceleration made it one of the faster-growing business services companies in recent history.

In Q3, CECO Environmental reported adjusted EPS of $0.26, up from $0.14 in the same quarter last year. This print beat analysts’ estimates by 4%. Over the next 12 months, Wall Street expects CECO Environmental’s full-year EPS of $0.87 to grow 58%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

CECO Environmental has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3%, subpar for a business services business.

Taking a step back, we can see that CECO Environmental’s margin dropped by 1.4 percentage points during that time. If the trend continues, it could signal it’s in the middle of an investment cycle.

CECO Environmental’s free cash flow clocked in at $19 million in Q3, equivalent to a 9.6% margin. This result was good as its margin was 1.4 percentage points higher than in the same quarter last year. Its cash profitability was also above its five-year level, and we hope the company can build on this trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although CECO Environmental has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.1%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, CECO Environmental’s has increased over the last few years. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

CECO Environmental reported $32.79 million of cash and $244.2 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $79.5 million of EBITDA over the last 12 months, we view CECO Environmental’s 2.7× net-debt-to-EBITDA ratio as safe. We also see its $9.77 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing CECO Environmental beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its full-year 2025 revenue guidance slightly missed. The market seemed to be hoping for more, and the stock traded down 7.2% to $49.51 immediately following the results.

Updated: December 3, 2025 at 10:08 PM EST

Before deciding whether to buy CECO Environmental or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

CECO Environmental is a rock-solid business worth owning. First, the company’s revenue growth was exceptional over the last five years, and analysts believe it can continue growing at these levels. And while its subscale operations give it fewer distribution channels than its larger rivals, its expanding adjusted operating margin shows the business has become more efficient. Additionally, CECO Environmental’s projected EPS for the next year implies the company’s fundamentals will improve.

CECO Environmental’s P/E ratio based on the next 12 months is 40.2x. There’s no doubt it’s a bit of a market darling given the lofty multiple, but we don’t mind owning a high-quality business, even if it’s expensive. We’re in the camp that investments like this should be held for at least three to five years to negate the short-term price volatility that can come with high valuations.

Wall Street analysts have a consensus one-year price target of $58.83 on the company (compared to the current share price of $54.25).