CSW (CSW)

Industrial products company CSW (NASDAQ:CSW) fell short of the markets revenue expectations in Q3 CY2025, but sales rose 21.5% year on year to $277 million. Its non-GAAP profit of $2.96 per share was 7.2% above analysts’ consensus estimates.

Company Overview

With over two centuries of combined operations manufacturing and supplying, CSW (NASDAQ:CSW) offers special chemicals, coatings, sealants, and lubricants for various industries.

Many HVAC and water systems companies sell essential, non-discretionary infrastructure for buildings. Since the useful lives of these water heaters and vents are fairly standard, these companies have a portion of predictable replacement revenue. In the last decade, trends in energy efficiency and clean water are driving innovation that is leading to incremental demand. On the other hand, new installations for these companies are at the whim of residential and commercial construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.

Competitors offering similar products include 3M (NYSE:MMM), Sherwin-Williams (NYSE:SHW), and PPG (NYSE:PPG).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, CSW grew its sales at an incredible 20.6% compounded annual growth rate. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. CSW’s annualized revenue growth of 11.7% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, CSW generated an excellent 21.5% year-on-year revenue growth rate, but its $277 million of revenue fell short of Wall Street’s high expectations.

Looking ahead, sell-side analysts expect revenue to grow 15.1% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will spur better top-line performance.

CSW has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 46.8% gross margin over the last five years. That means CSW only paid its suppliers $53.19 for every $100 in revenue.

In Q3, CSW produced a 94.3% gross profit margin, up 48.7 percentage points year on year. CSW’s full-year margin has also been trending up over the past 12 months, increasing by 12.8 percentage points. If this move continues, it could suggest a less competitive environment where the company has better pricing power and leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

CSW has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 19%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, CSW’s operating margin rose by 3.5 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, CSW generated an operating margin profit margin of 20.5%, down 2.1 percentage points year on year. Conversely, its revenue and gross margin actually rose, so we can assume it was less efficient because its operating expenses like marketing, R&D, and administrative overhead grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

CSW’s EPS grew at an astounding 23.4% compounded annual growth rate over the last five years, higher than its 20.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into CSW’s earnings to better understand the drivers of its performance. As we mentioned earlier, CSW’s operating margin declined this quarter but expanded by 3.5 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For CSW, its two-year annual EPS growth of 17.8% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, CSW reported adjusted EPS of $2.96, up from $2.26 in the same quarter last year. This print beat analysts’ estimates by 7.2%. Over the next 12 months, Wall Street expects CSW’s full-year EPS of $9.23 to grow 18.1%.

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.

CSW has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 15.6% over the last five years.

Taking a step back, we can see that CSW’s margin expanded by 5.2 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

CSW’s free cash flow clocked in at $58.75 million in Q3, equivalent to a 21.2% margin. The company’s cash profitability regressed as it was 5.7 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t read too much into this quarter’s decline because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, leading to short-term swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

CSW’s five-year average ROIC was 14.9%, beating other industrials companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

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. CSW’s ROIC has increased over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

CSW reported $31.47 million of cash and $60 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 $237.6 million of EBITDA over the last 12 months, we view CSW’s 0.1× net-debt-to-EBITDA ratio as safe. We also see its $3.89 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.

It was encouraging to see CSW beat analysts’ EPS expectations this quarter. On the other hand, its revenue slightly missed. Overall, this print was mixed. The stock remained flat at $244.11 immediately following the results.

Updated: November 14, 2025 at 10:12 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in CSW.

CSW is a cream-of-the-crop industrials company. For starters, its revenue growth was exceptional over the last five years and is expected to accelerate over the next 12 months. On top of that, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, and its impressive operating margins show it has a highly efficient business model.

CSW’s P/E ratio based on the next 12 months is 21.8x. Scanning the industrials landscape today, CSW’s fundamentals clearly illustrate that it’s an elite business, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $283.33 on the company (compared to the current share price of $248.16), implying they see 14.2% upside in buying CSW in the short term.