Northwest Pipe (NWPX)

Water management company Northwest Pipe (NASDAQ:NWPX) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 16% year on year to $151.1 million. Its GAAP profit of $1.38 per share was 35.7% above analysts’ consensus estimates.

Company Overview

Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe (NASDAQ:NWPX) is a manufacturer of pipeline systems for water infrastructure.

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 Mueller (NYSE:MWA), Advanced Drainage Systems (NYSE:WMS), and American States Water Company (NYSE:AWR).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Northwest Pipe’s 12.5% annualized revenue growth over the last five years was excellent. Its growth beat the average industrials company and shows its offerings resonate with customers.

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. Northwest Pipe’s annualized revenue growth of 8.6% over the last two years is below its five-year trend, but we still think the results were respectable.

This quarter, Northwest Pipe reported year-on-year revenue growth of 16%, and its $151.1 million of revenue exceeded Wall Street’s estimates by 14.4%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds.

Northwest Pipe has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 17.8% gross margin over the last five years. That means Northwest Pipe paid its suppliers a lot of money ($82.22 for every $100 in revenue) to run its business.

Northwest Pipe’s gross profit margin came in at 21.3% this quarter, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Northwest Pipe has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.6%, higher than the broader industrials sector.

Analyzing the trend in its profitability, Northwest Pipe’s operating margin rose by 3 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, Northwest Pipe generated an operating margin profit margin of 12.6%, in line with the same quarter last year. This indicates the company’s cost structure has recently been 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.

Northwest Pipe’s EPS grew at an unimpressive 7% compounded annual growth rate over the last five years, lower than its 12.5% 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.

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.

Northwest Pipe’s two-year annual EPS growth of 25.4% was fantastic and topped its 8.6% two-year revenue growth.

We can take a deeper look into Northwest Pipe’s earnings to better understand the drivers of its performance. While we mentioned earlier that Northwest Pipe’s operating margin was flat this quarter, a two-year view shows its margin has expandedwhile its share count has shrunk 2.9%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q3, Northwest Pipe reported EPS of $1.38, up from $1.02 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Northwest Pipe’s full-year EPS of $3.68 to stay about the same.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Northwest Pipe 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 3.2%, subpar for an industrials business.

Taking a step back, an encouraging sign is that Northwest Pipe’s margin expanded by 13.7 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Northwest Pipe’s free cash flow clocked in at $13.18 million in Q3, equivalent to a 8.7% margin. The company’s cash profitability regressed as it was 4.2 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t put too much weight on this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends carry greater meaning.

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).

Northwest Pipe historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.2%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

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, Northwest Pipe’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

Northwest Pipe reported $2.67 million of cash and $132 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 $67.61 million of EBITDA over the last 12 months, we view Northwest Pipe’s 1.9× net-debt-to-EBITDA ratio as safe. We also see its $3.10 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 good to see Northwest Pipe beat analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock remained flat at $55.68 immediately following the results.

Updated: December 4, 2025 at 9:06 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

There are some positives when it comes to Northwest Pipe’s fundamentals. First off, its revenue growth was impressive over the last five years. And while its low gross margins indicate some combination of competitive pressures and high production costs, its rising cash profitability gives it more optionality. On top of that, its expanding operating margin shows the business has become more efficient.

Northwest Pipe’s P/E ratio based on the next 12 months is 15.9x. Looking at the industrials landscape right now, Northwest Pipe trades at a pretty interesting price. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $64 on the company (compared to the current share price of $60.09), implying they see 6.5% upside in buying Northwest Pipe in the short term.