HLIO Stock Outlook: What's Driving Demand and Margins in 2026

Helios Technologies, Inc. HLIO enters 2026 with a clearer demand picture than it had a year ago. Industrial indicators are improving, distributor conditions look healthier and the order book has been firm enough to support stronger growth early in the year.

With margins already trending higher through 2025, the next question is whether that recovery can extend as volumes rebuild. The setup points to a better first half, with a more challenging second-half comparison and execution risks that are worth monitoring.

Setup for a Stronger First Half of 2026

Industrial indicators and channel checks support a more constructive demand environment in the first half of 2026. Distributor inventories are healthier, which matters for a business with meaningful channel exposure and helps reduce the risk of sudden de-stocking cycles.

Helios delivered 10 straight months of year-over-year order growth through 2025. That order momentum is creating visibility for the first quarter of 2026 and supports management’s view that the recovery is real, not just a one-quarter bounce.

Hydraulics Demand Tied to Infrastructure

Demand for products within the Hydraulics segment is being supported by infrastructure-driven construction activity in the United States and Europe. That demand mix aligns well with Helios’ motion control portfolio and provides an end-market tailwind that tends to be less discretionary than consumer-linked categories.

Agriculture also appears to have moved off the bottom. After prolonged softness, the market stabilized in the second half of 2025, and Helios saw early recovery signals in that period.

The combination showed up in the results. Hydraulics sales increased 10% year over year in the fourth quarter of 2025, driven by strength in construction and mobile markets and early recovery in agriculture.

Electronics Growth Is Real but Concentrated

The Electronics segment delivered the most eye-catching growth exiting 2025. Segment sales rose 31% year over year in the fourth quarter, reflecting stronger demand across several end markets and demonstrating that the business can accelerate quickly when customers ramp.

Still, investors should pay attention to the source of that growth. The improvement was concentrated, with one large recreational original equipment manufacturer driving most of the gains and contributing meaningfully to regional growth.

That concentration raises the bar for 2026 performance. Sustaining the momentum will depend on broader customer participation and continued conversion of the commercial pipeline, rather than relying on a single outsized ramp.

Margin Rebuild Has Clear Building Blocks

Helios’ margin recovery in 2025 was consistent and measurable. Gross margin expanded in each quarter of the year and finished the fourth quarter at 33.6%, up 350 basis points year over year.

The drivers were favorable mix, productivity gains, and better scale, partially offset by tariff impacts. Adjusted EBITDA margin reached 20.1% in the fourth quarter, showing that higher volumes and improved absorption are flowing through the income statement.

Management is targeting additional operating leverage through throughput initiatives, footprint optimization, and disciplined spending. With expenses already declining as a percentage of sales in the fourth quarter, these actions give Helios building blocks to extend margin improvement as demand strengthens.

Why the Second Half of 2026 Could Look Slower Than the First Half of 2026

Management expects growth to be much stronger in the first half of 2026 than in the second half. The difference reflects recovery timing and tougher comparisons later in the year as the company laps improving order trends and stronger results from 2025.

That dynamic matters for profitability. A strong early ramp can support operating leverage, but a slower second half can reduce incremental margin gains because the company will be running against a higher cost base tied to launches and growth initiatives.

The Zacks Consensus Estimate for HLIO’s 2026 earnings is pegged at $2.78 per share, suggesting 8.5% year-over-year growth. The estimate for 2027 indicates growth of 13.2%.

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Key Risks Investors Should Track Into 2026

The biggest execution risk is conversion. Helios is relying on sales funnel conversion and the timing of customer approvals and new product launches to sustain growth, particularly as Electronics is expected to be stronger early in the year.

Slower distributor sell-through could push revenue timing, and recreational marine and powersports retail remained soft exiting 2025, which could weigh on electronics demand tied to those categories.

Finally, margins face external pressures. Cost inflation and potential supply constraints could pressure profitability, and tariff headwinds remain a factor, especially with higher year-over-year tariff costs expected in the first quarter of 2026 versus the prior-year timing.

HLIO currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Manufacturing–General Industrial names offer a useful read-through on broad industrial demand. The Gorman-Rupp Company GRC, a pump manufacturer serving markets including water, wastewater, construction, and industrial applications, currently carries a Zacks Rank of 2, highlighting how resilient infrastructure-linked demand can be in this tape. Standex International Corporation SXI operates across several industrial manufacturing categories and currently has a Zacks Rank #3 (Hold), reflecting a more neutral near-term setup.

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This article originally published on Zacks Investment Research (zacks.com).

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