NCS Multistage’s Q1 Surge Faces Tariff Headwinds: A Strong Start, But Storm Clouds Loom

NCS Multistage Holdings (NASDAQ: NCSM) delivered a standout first quarter of 2025, with revenue hitting $50 million—a 14% year-over-year jump and the highest since 2020. The results, highlighted in Stonegate Capital Partners’ recent analysis, underscore the company’s resilience in a volatile energy market. But beneath the strong numbers lie risks that could test its momentum in the second half of the year.

The Drivers of Growth: Canada and Innovation

NCSM’s surge was fueled by two key factors: Canadian dominance and international diversification. Canadian product sales surged 26% sequentially, driven by demand for fracturing systems in the Montney shale region. Meanwhile, services revenue grew broadly, offsetting a 13% dip in U.S. sales due to project delays.

Internationally, the company’s tracer diagnostics work in the Middle East and North Sea product sales provided high-margin opportunities. While international revenue fell 34% sequentially due to project timing, it rose 33.8% year-over-year, signaling long-term potential.

Margins Expand, Liquidity Strengthens

The financial picture is equally compelling. Gross margins expanded to 43.7% in Q1 2025 from 40.1% a year earlier, aided by operational efficiencies and higher-margin international work. Adjusted EBITDA jumped 35% to $8.2 million, with margins hitting 16%—up from 14% in 2024.

Liquidity remains a cornerstone of NCSM’s strength. The company ended Q1 with $49.8 million in total liquidity, including $23 million in cash, and a net cash position of $15.4 million. This robust balance sheet gives NCSM flexibility to navigate headwinds.

The Cloud on the Horizon: Tariffs and Trade Tensions

Stonegate’s analysis, however, flags a critical risk: global trade tensions. Potential U.S. tariffs on Chinese imports and steel—a key input for energy infrastructure—could pressure costs and drilling activity in late 2025. NCSM’s management warns that these tariffs could disrupt its Canadian and U.S. operations, where projects rely on imported materials.

CEO Ryan Hummer noted in the report: “We’re executing well, but macro risks are real.” The company is exploring alternatives, such as domestic suppliers, but the timing and cost remain uncertain.

The Valuation Case: Undervalued, But Not Without Risks

Stonegate’s valuation models suggest upside. A discounted cash flow (DCF) analysis estimates a midpoint of $34.96 per share, while an EV/EBITDA multiple-based valuation yields $34.36. NCSM’s stock trades at $32, below both benchmarks, implying 8%–10% upside.

The bullish case hinges on two factors:
1. International expansion: Middle East and North Sea projects could offset U.S./Canadian volatility.
2. Operational leverage: Margins at 44% suggest further upside if revenue grows modestly.

The Bottom Line: A Buy, But with an Eye on Tariffs

NCS Multistage’s Q1 results are undeniably strong—revenue growth, margin expansion, and a fortress balance sheet make it a compelling play on energy services. Its focus on high-margin markets and innovation (e.g., tracer diagnostics, dissolvable frac plugs) positions it to outperform peers.

However, the tariff risk is a wildcard. If trade tensions escalate, NCSM’s second-half growth could stall. Investors should monitor tariff developments closely.

Final Verdict

NCSM is a Buy for investors willing to accept macro risks. Its $15.4 million net cash position, $20–$24 million FY2025 EBITDA guidance, and 14% YoY revenue growth suggest it can weather near-term headwinds. If trade tensions ease or the company finds cost-saving alternatives, the stock could hit Stonegate’s $34.36 midpoint—a 7% gain from current levels.

But remember: Energy markets are notoriously cyclical. NCSM’s success hinges on execution in high-margin markets and navigating trade policy uncertainty. For now, the data says cautious optimism is justified—but keep an eye on Washington.