Is Mayville Engineering (MEC) Stock a Buy Amid Market Optimism and Strategic Expansion?

The industrial manufacturing sector has long been a barometer for macroeconomic trends, but in 2025, one company has captured renewed attention: Mayville Engineering Company (MEC). Amid a strategic pivot toward high-growth data center infrastructure and a recent acquisition of Accu-Fab, MEC has drawn bullish analyst ratings and a re-rating narrative. However, the stock's valuation remains a contentious topic, with divergent fair value estimates and lingering challenges in legacy markets. This analysis evaluates whether MEC is a compelling buy, balancing market optimism with valuation realities.

Market Sentiment: A Tale of Two Markets

MEC's recent trajectory reflects a dual narrative: optimism about its data center expansion and caution over its legacy business. Analysts have been vocal in their support. Craig-Hallum initiated coverage with a Buy rating and a $24 price target, citing the company's "under-the-radar" positioning in the data center boom. D.A. Davidson echoed this sentiment, reaffirming a Buy with a $19 target, while OpenAI–4o maintained a Hold. These ratings underscore confidence in MEC's ability to capitalize on the surging demand for data center infrastructure, driven by AI and cloud computing.

Third-quarter results reinforced this optimism. MEC reported a 6.6% year-over-year revenue increase to $144.3 million, with the data center and critical power segment contributing $22.6 million in sales and 7.4% organic growth. CEO Jag Reddy highlighted that this segment could account for 20% of total sales by 2026, a figure that aligns with broader industry trends. For context, the global data center market is projected to grow at a 12% CAGR through 2030, creating a tailwind for MEC's strategic bets.

Yet, the company's legacy markets remain a drag. Commercial vehicle and agricultural equipment sales are expected to decline by 28% in 2025, a drag on overall profitability. This duality-high-growth data center opportunities versus shrinking legacy segments-has led to mixed short-term sentiment. While management maintains full-year 2025 guidance of $528–$562 million in net sales, adjusted EBITDA margins have contracted to 9.8%, and net profit margins stand at 2.61%, reflecting integration costs and margin pressures.

Valuation Timing: Fair Value vs. Market Reality

The current stock price of $16.87 sits below the $23.60 fair value estimate derived from a discounted cash flow (DCF) model, suggesting potential upside. However, this valuation hinges on key assumptions. The DCF model assumes a 9.9% annual revenue growth rate and a 2.62% net profit margin, both of which are contingent on successful execution in the data center segment. Analysts project that this segment could contribute 20–25% of revenue in the coming years, with gross margins 10 percentage points higher than legacy markets, a critical lever for margin expansion.

Comparisons to industry averages, however, reveal a more nuanced picture. MEC's projected 5.1% annual revenue growth lags behind the US Machinery industry's 10.5% average, while its 2.29% net profit margin is typical for capital-intensive industrial firms but below some peers, a gap that reflects the company's reliance on low-margin legacy markets. This gap reflects the company's reliance on low-margin legacy markets and the early-stage nature of its data center pivot.

Price targets further highlight divergent views. Craig-Hallum's $24 target implies a 42% upside from the current price, while a Lynch-style fair value model suggests a 13% downside to $15.03. These extremes reflect the binary nature of MEC's prospects: success in data centers could unlock significant value, but execution risks-such as integration challenges with Accu-Fab or slower-than-expected demand-could cap gains.

Risks and Execution Challenges

The bull case for MEC rests on three pillars: (1) successful integration of Accu-Fab, (2) sustained demand for data center infrastructure, and (3) margin expansion in the new segment. However, these outcomes are not guaranteed. The company's $100 million data center pipeline and $30 million in secured projects are promising, but converting these into cash flow requires navigating supply chain bottlenecks and rising material costs.

Moreover, MEC's balance sheet is not without vulnerabilities. The company's free cash flow guidance of $25–$31 million for 2025 is modest, limiting its ability to reinvest in growth or reward shareholders. With a market cap of approximately $1.2 billion (as of November 2025), MEC is small enough that even a $100 million swing in earnings could significantly impact its valuation.

Conclusion: A Buy for the Long-Term, But With Caution

MEC's stock is a classic case of "buy the story, not the numbers." The company's strategic alignment with the data center boom and strong analyst backing make it an attractive long-term play, particularly for investors who can tolerate near-term volatility. The $16.87 price point offers a discount to the $23.60 DCF fair value, but this premium is only justified if the data center segment delivers on its margin and revenue promises.

However, investors should approach with caution. The current valuation assumes a smooth transition away from legacy markets, a feat complicated by the 28% projected decline in commercial vehicle sales. Additionally, the company's reliance on a single high-growth segment introduces concentration risk. For those willing to bet on MEC's execution, the stock could offer a compelling risk-reward profile. For others, the mixed short-term fundamentals and valuation dispersion may warrant a wait-and-see approach.

In the end, MEC is a stock for the patient. If the data center thesis plays out, the rewards could be substantial. But as with any high-conviction bet, the margin of safety is thin.