Standex (SXI)

Industrial manufacturer Standex (NYSE:SXI) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 17.2% year on year to $207.8 million. Its non-GAAP profit of $1.95 per share was 1.5% above analysts’ consensus estimates.

Company Overview

Holding over 500 patents globally, Standex (NYSE:SXI) is a manufacturer and distributor of industrial components for various sectors.

Gas and liquid handling companies possess the technical know-how and specialized equipment to handle valuable (and sometimes dangerous) substances. Lately, water conservation and carbon capture–which requires hydrogen and other gasses as well as specialized infrastructure–have been trending up, creating new demand for products such as filters, pumps, and valves. On the other hand, gas and liquid handling companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Illinois Tool Works (NYSE:ITW), Dover (NYSE:DOV), and Middleby (NASDAQ:MIDD).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Standex grew its sales at a sluggish 3.4% compounded annual growth rate. This was below our standard for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Standex’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

This quarter, Standex reported year-on-year revenue growth of 17.2%, and its $207.8 million of revenue exceeded Wall Street’s estimates by 1.7%.

Looking ahead, sell-side analysts expect revenue to grow 15.7% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and suggests its newer products and services will catalyze better top-line performance.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

Standex’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 37.9% gross margin over the last five years. That means Standex only paid its suppliers $62.09 for every $100 in revenue.

Standex produced a 39.7% gross profit margin in Q1, marking a 1.1 percentage point increase from 38.5% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Standex has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Standex’s operating margin rose by 3.6 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Standex generated an operating profit margin of 12.6%, down 2.3 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.

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.

Standex’s EPS grew at a remarkable 12.2% compounded annual growth rate over the last five years, higher than its 3.4% 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 Standex’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Standex’s operating margin declined this quarter but expanded by 3.6 percentage points over the last five years. Its share count also shrank by 2.7%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

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 Standex, its two-year annual EPS growth of 5.9% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q1, Standex reported EPS at $1.95, up from $1.75 in the same quarter last year. This print beat analysts’ estimates by 1.5%. Over the next 12 months, Wall Street expects Standex’s full-year EPS of $7.33 to grow 20.6%.

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.

Standex has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.2% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Standex’s margin dropped by 2.4 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Standex’s free cash flow clocked in at $9.55 million in Q1, equivalent to a 4.6% margin. The company’s cash profitability regressed as it was 6.2 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

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).

Although Standex hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 12.5%, higher than most industrials businesses.

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. Over the last few years, Standex’s ROIC averaged 1.2 percentage point increases each year. This is a good sign, and we hope the company can keep improving.

Standex reported $109.8 million of cash and $616 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 $154.5 million of EBITDA over the last 12 months, we view Standex’s 3.3× net-debt-to-EBITDA ratio as safe. We also see its $511,000 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 Standex beat analysts’ revenue expectations this quarter. On the other hand, its EBITDA slightly missed. Overall, this print was mixed. The stock remained flat at $144.85 immediately after reporting.

Updated: May 22, 2025 at 11:17 PM EDT

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 Standex.

Standex’s business quality ultimately falls short of our standards. First off, its revenue growth was weak over the last five years. And while Standex’s projected EPS for the next year implies the company’s fundamentals will improve, its cash profitability fell over the last five years.

Standex’s P/E ratio based on the next 12 months is 16.7x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $197 on the company (compared to the current share price of $147.31).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

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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