Is Powell Industries (POWL) a Buy Despite Recent Outperformance?

In the world of industrial stocks, Powell Industries (NASDAQ: POWL) has emerged as a standout performer in 2025. The stock has surged over 63% year-to-date, far outpacing the S&P 500's 3.1% gain. But is this momentum justified? To answer this, we must dissect Powell's earnings estimate revisions, revenue growth potential, and valuation metrics to determine whether the stock's recent outperformance is sustainable or a fleeting rally.

Earnings Estimate Revisions: A Tale of Two Timeframes

Analyst expectations for Powell Industries tell a nuanced story. For the current quarter (September 2025), there have been no upward revisions in the past 30 days, with 1 downward revision recorded. The next quarter (December 2025) fared worse, with 2 downward revisions in both the 7- and 30-day periods. These near-term adjustments suggest cautious optimism, as analysts are not yet confident in Powell's ability to maintain its recent earnings momentum.

However, the broader picture is more encouraging. For the current fiscal year (2025), there have been 2 upward revisions in the past 30 days, and for 2026, 1 upward revision has been recorded. This divergence highlights a critical insight: while short-term challenges persist (likely tied to the weak petrochemical sector), long-term expectations are improving. The consensus EPS estimate for 2025 is $14.39, a 17.1% year-over-year increase, and for 2026, the upward revision trajectory suggests analysts are factoring in Powell's strategic strengths.

Revenue Growth and Valuation: A Discounted High-Performer

Powell's Q2 2025 revenue of $278.6 million reflects a 9.2% year-over-year increase, driven by robust performance in the Electric Utility and Commercial & Other Industrial segments. These segments grew by 48% and 16%, respectively, offsetting a 13% decline in the Petrochemical segment. This uneven growth underscores a key risk: Powell's reliance on a few high-growth sectors. If demand in Electric Utility softens, the company's revenue could face headwinds.

Yet, the valuation story is compelling. Powell's price-to-sales (P/S) ratio of 2.72 is 69% below the industry average of 8.90, suggesting the stock is trading at a significant discount relative to peers. Its EV/EBITDA ratio of 13.20 is also lower than the industry median of 16.33, further reinforcing its undervaluation. The PEG ratio of 0.44—calculated by dividing the forward P/E ratio (18.88) by the 5-year EBITDA growth rate (43.4%)—indicates the stock is priced for conservative expectations despite its strong earnings growth.

The Case for Caution and Opportunity

While Powell's valuation metrics are attractive, investors must weigh the risks. The Petrochemical segment's decline and concentration in Electric Utility expose the company to sector-specific volatility. Additionally, free cash flow yield has fallen to 2.60%, down from 5.05% over the past five years, signaling potential challenges in sustaining high-growth cash flow generation.

However, the company's $1.3 billion backlog and $433 million in cash reserves provide a strong foundation for future growth. The recent acquisition of REMSAK Limited, a UK-based SCADA technology firm, also positions Powell to capitalize on the expanding utility automation market. These strategic moves, combined with a 6.17% earnings surprise in Q2 2025, suggest management is executing effectively.

Investment Thesis: A Buy for the Long-Term

Powell Industries is a classic value-growth hybrid: undervalued on traditional metrics but with a clear path to earnings expansion. The stock's recent 28% gain in a single month may have priced in some of its near-term optimism, but the 17.1% year-over-year earnings growth projection for 2025 and positive PEG ratio indicate the market has yet to fully appreciate its potential.

For investors with a 3–5 year horizon, Powell offers an attractive entry point. The key is to monitor the Petrochemical segment's performance and free cash flow trends. If these stabilize or improve, the stock could see further upside. Conversely, a prolonged downturn in Electric Utility demand could pressure the valuation.

Final Verdict

Powell Industries is not without risks, but its strong revenue growth, attractive valuation, and strategic positioning in high-demand sectors make it a compelling buy for long-term investors. The recent outperformance is justified by its fundamentals, and the margin of safety provided by its discounted valuation adds a layer of protection. For those willing to ride out near-term volatility, POWL could deliver substantial returns as the market re-rates its earnings potential.

Investment Recommendation: Buy for long-term growth, with a stop-loss at $250 to mitigate downside risk.