Hudson Technologies (HDSN)

Refrigerant services company Hudson Technologies (NASDAQ:HDSN) reported Q1 CY2025 results topping the market’s revenue expectations, but sales fell by 15.2% year on year to $55.34 million. Its GAAP profit of $0.06 per share was in line with analysts’ consensus estimates.

Company Overview

Founded in 1991, Hudson Technologies (NASDAQ:HDSN) specializes in refrigerant services and solutions, providing refrigerant sales, reclamation, and recycling.

Historically, specialty equipment distributors have boasted deep selection and expertise in sometimes narrow areas like single-use packaging or unique lighting equipment. Additionally, the industry has evolved to include more automated industrial equipment and machinery over the last decade, driving efficiencies and enabling valuable data collection. Specialty equipment distributors whose offerings keep up with these trends can take share in a still-fragmented market, but like the broader industrials sector, this space is at the whim of economic cycles that impact the capital spending and manufacturing propelling industry volumes.

Competitors in the refrigerant services and solutions industry include Arkema (OTC:ARKAY), The Chemours Company (NYSE:CC), and Honeywell International (NASDAQ:HON).

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Hudson Technologies’s sales grew at a mediocre 6.8% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector and is a poor baseline 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. Hudson Technologies’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 15.5% annually.

This quarter, Hudson Technologies’s revenue fell by 15.2% year on year to $55.34 million but beat Wall Street’s estimates by 6%.

Looking ahead, sell-side analysts expect revenue to grow 5.7% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

Hudson Technologies’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 37.2% gross margin over the last five years. Said differently, roughly $37.24 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

In Q1, Hudson Technologies produced a 21.8% gross profit margin, down 11 percentage points year on year. Hudson Technologies’s full-year margin has also been trending down over the past 12 months, decreasing by 12.2 percentage points. If this move continues, it could suggest deteriorating pricing power and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Hudson Technologies 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 24%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Hudson Technologies’s operating margin rose by 3.8 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Hudson Technologies generated an operating profit margin of 5.6%, down 14 percentage points year on year. Since Hudson Technologies’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

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.

Hudson Technologies’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

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

Sadly for Hudson Technologies, its EPS declined by more than its revenue over the last two years, dropping 55.9%. This tells us the company struggled to adjust to shrinking demand.

We can take a deeper look into Hudson Technologies’s earnings to better understand the drivers of its performance. Hudson Technologies’s operating margin has declined by 23.8 percentage points over the last two years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Hudson Technologies reported EPS at $0.06, down from $0.20 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Hudson Technologies to perform poorly. Analysts forecast its full-year EPS of $0.37 will hit $0.50.

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.

Hudson Technologies 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 18.5% over the last five years.

Taking a step back, we can see that Hudson Technologies’s margin expanded by 38.5 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.

Hudson Technologies’s free cash flow clocked in at $12.75 million in Q1, equivalent to a 23% margin. Its cash flow turned positive after being negative in the same quarter last year, building on its favorable historical 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 Hudson Technologies hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 26.4%, splendid for an industrials business.

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. Unfortunately, Hudson Technologies’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Hudson Technologies is a profitable, well-capitalized company with $81.05 million of cash and $4.42 million of debt on its balance sheet. This $76.63 million net cash position is 22.3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Hudson Technologies blew past analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 1.3% to $6.80 immediately after reporting.

Updated: May 16, 2025 at 11:01 PM EDT

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

Hudson Technologies isn’t a terrible business, but it doesn’t pass our bar. For starters, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its projected EPS for the next year is lacking.

Hudson Technologies’s EV-to-EBITDA ratio based on the next 12 months is 10.2x. Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $7.31 on the company (compared to the current share price of $7.75).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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