Thermon (THR)

Industrial process heating solutions provider Thermon (NYSE:THR) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 14.9% year on year to $131.7 million. The company’s full-year revenue guidance of $516.5 million at the midpoint came in 2.1% above analysts’ estimates. Its non-GAAP profit of $0.55 per share was 51.7% above analysts’ consensus estimates.

Company Overview

Creating the first packaged tracing systems, Thermon (NYSE:THR) is a leading provider of engineered industrial process heating solutions for process industries.

Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.

Competitors of Thermon include nVent Electric (NYSE:NVT), Pentair (NYSE:PNR), and private company Chromalox.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Thermon’s 10.3% annualized revenue growth over the last five years was solid. 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. Thermon’s recent performance shows its demand has slowed as its annualized revenue growth of 3.5% over the last two years was below its five-year trend.

This quarter, Thermon reported year-on-year revenue growth of 14.9%, and its $131.7 million of revenue exceeded Wall Street’s estimates by 10.3%.

Looking ahead, sell-side analysts expect revenue to grow 3.4% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and implies its newer products and services will not lead to better top-line performance yet.

Cost of sales for an industrials business 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.

Thermon 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 43% gross margin over the last five years. Said differently, roughly $43.05 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

Thermon’s gross profit margin came in at 46.4% this quarter, marking a 2 percentage point increase from 44.4% in the same quarter last year. Thermon’s full-year margin has also been trending up over the past 12 months, increasing by 1.8 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Thermon 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 14.4%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Thermon’s operating margin rose by 9.5 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, Thermon generated an operating margin profit margin of 16.4%, up 2.6 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

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.

Thermon’s EPS grew at an astounding 46.6% compounded annual growth rate over the last five years, higher than its 10.3% 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 Thermon’s earnings to better understand the drivers of its performance. As we mentioned earlier, Thermon’s operating margin expanded by 9.5 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 Thermon, its two-year annual EPS growth of 5.6% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Thermon reported adjusted EPS of $0.55, up from $0.38 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

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.

Thermon 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 9.4% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Thermon’s margin expanded by 2.6 percentage points during that time. This is encouraging because it gives the company more optionality.

Thermon’s free cash flow clocked in at $4.36 million in Q3, equivalent to a 3.3% margin. The company’s cash profitability regressed as it was 2.5 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

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).

Thermon historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9%, 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. Over the last few years, Thermon’s ROIC averaged 4 percentage point increases each year. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Thermon reported $29.75 million of cash and $151.6 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 $114.1 million of EBITDA over the last 12 months, we view Thermon’s 1.1× net-debt-to-EBITDA ratio as safe. We also see its $8.67 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 Thermon beat analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 3.7% to $30.50 immediately after reporting.

Updated: December 4, 2025 at 10:10 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.

Thermon isn’t a bad business, but we have other favorites. To kick things off, its revenue growth was solid over the last five years. And while Thermon’s projected EPS for the next year is lacking, its expanding operating margin shows the business has become more efficient.

Thermon’s P/E ratio based on the next 12 months is 17.6x. While this valuation is fair, 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 $37 on the company (compared to the current share price of $38.13).