Hexagon AB (HEXA B): Is the Pullback a Buying Opportunity Amid Growth and Valuation Divergence?

Hexagon AB (HEXA B), a global leader in digital solutions for industrial and geospatial markets, has seen its stock trade at a valuation dislocation relative to its historical norms and industry peers. With a current EV/EBITDA ratio of 14.52 as of September 2025-lower than its 10-year median of 21.93 but still above the Hardware industry median of 13.84-investors are left to weigh whether this divergence signals an undervalued opportunity or a reflection of underlying growth concerns according to Gurufocus data. This analysis examines Hexagon's valuation metrics, growth sustainability, and market sentiment to determine if the recent pullback merits a strategic entry point.

Valuation Dislocation: A Mixed Picture

Hexagon's valuation appears modest compared to its historical range but diverges from its peers in key ways. Its price-to-earnings (P/E) ratio of 26.22 and price-to-book (P/B) ratio of 2.69 suggest a moderate valuation relative to earnings and equity value according to Yahoo Finance. However, the P/B ratio lags significantly behind the Hardware industry's average of 38.96, indicating investors are not paying a premium for Hexagon's book value compared to its sector as per NYU Stern data. This discrepancy could reflect skepticism about Hexagon's ability to sustain growth or generate returns on equity.

The EV/EBITDA ratio of 14.52, while at the lower end of Hexagon's historical range (11.93–40.6), still ranks worse than 51.96% of Hardware industry peers according to Gurufocus data. This suggests Hexagon is valued slightly higher than its competitors, potentially due to its recurring revenue model or long-term growth prospects. Yet, the company's EBIT1 margin has declined from 29.0% to 26.8% year-over-year, driven by macroeconomic pressures and FX impacts per the company's interim report. Such margin compression raises questions about whether Hexagon's valuation can support its current multiple if profitability trends persist.

Growth Sustainability: Organic Gains vs. Margin Pressures

Hexagon's 5-year revenue CAGR of 2.29% and 4% organic growth in 2025 highlight its resilience in a challenging macroeconomic environment according to StockGuide forecasts. Recurring revenue, a critical metric for software and SaaS firms, grew 6% organically to 564.2 MEUR, underscoring the company's ability to retain customers and generate stable cash flows per the interim report. However, EBITDA growth has been uneven. While analysts project a 12.35% increase in EBITDA for 2025, the company's adjusted operating earnings (EBIT1) fell 7% year-over-year in Q3 2025, with margins contracting to 26.8% as reported in the interim report.

This divergence between revenue and EBITDA growth points to structural challenges. Hexagon's exposure to sectors like sensors and aerospace, which are sensitive to economic cycles, has led to volatility in its top and bottom lines. For instance, Q3 2025 saw a 7% decline in EBIT1 due to weaker sensor sales and delivery delays as reported in the interim report. While the company has emphasized cost discipline and innovation in autonomous solutions (which grew 19% organically), these gains may not offset broader margin pressures without significant operational improvements as stated in earnings call.

Sustainability and Future Outlook: Strategic Alignment with Industry Trends

Hexagon's long-term sustainability goals, including a 95% reduction in Scope 1 and 2 emissions by 2030 and 100% renewable energy usage by 2027, align with global decarbonization trends according to company sustainability reports. The company's focus on digital twins and green technology-such as optimizing manufacturing processes and supporting renewable energy projects-positions it to benefit from the net-zero transition as detailed on the company website. However, the 2025 interim report did not quantify progress on these metrics, leaving investors to assess whether Hexagon's sustainability initiatives will translate into measurable EBITDA growth or competitive differentiation as reported in the interim report.

From a market perspective, Hexagon's 2025-2026 guidance remains cautiously optimistic. The company aims to maintain innovation-driven growth in autonomous solutions and aerospace, sectors where it has demonstrated strong demand as stated in earnings call. Yet, its cash conversion rate of 77% in Q3 2025 fell short of its annual target of 80-90%, signaling potential liquidity constraints according to financial news. These factors suggest that while Hexagon's strategic direction is sound, execution risks could temper its ability to capitalize on long-term opportunities.

Market Sentiment: A Divided Outlook

Analyst ratings for Hexagon AB reflect a mixed outlook, with 42% recommending a "Buy," 46% a "Hold," and 13% a "Sell" according to StockGuide data. The average price target of SEK 122.40 implies a 12.81% upside from its current price of SEK 108.50, suggesting cautious optimism about its valuation potential as reported by StockGuide. However, the hardware industry's average EBITDA multiples (6.8x–11.1x) and Hexagon's own margin pressures indicate that the market may be pricing in a conservative growth scenario as per FirstPagesAge analysis.

Conclusion: A Calculated Opportunity

Hexagon AB's valuation dislocation-particularly its EV/EBITDA and P/B ratios-presents an intriguing case for value investors. While its organic revenue growth and recurring revenue streams offer a foundation for long-term stability, margin pressures and uneven EBITDA performance highlight execution risks. The company's alignment with sustainability trends and strong demand in autonomous solutions could drive future growth, but these benefits depend on effective cost management and operational execution.

For investors, the key question is whether Hexagon can sustain its 5-year revenue CAGR of 2.29% while improving EBITDA margins. If the company can navigate macroeconomic headwinds and deliver on its sustainability agenda, the current valuation may represent a compelling entry point. However, those with a shorter time horizon or risk aversion may prefer to wait for clearer signs of margin stabilization and growth acceleration.