Taylor Devices Falls 25% in Six Months: Should You Buy the Dip or Wait?

Taylor Devices, Inc. TAYD shares have lost 25.1% in the past six months compared with the industry’s 6.9% decline. It has also lagged the broader Zacks Industrial Products sector’s 2.8% rise and the S&P 500’s 12.2% increase in the same time frame. TAYD faces challenges from weaker sales, unfavorable mix, customer concentration, project timing volatility, margin pressure, rising R&D costs and inventory obsolescence.

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What’s Weighing on TAYD’s Performance?

Taylor Devices faces near-term pressure from weaker revenue and an unfavorable sales mix. Fiscal 2026 net revenue declined 10% to $41.7 million, while gross profit fell 15%. Structural sales dropped 31% and industrial sales declined 11%, only partly offset by a 1% increase in aerospace/defense sales. International demand was also softer, with Asia sales falling to $3.2 million from $7 million and sales outside the U.S. and Asia decreasing by $0.7 million.

Revenue from long-term projects was 25% lower year over year despite 40 projects being in process, highlighting the uneven timing of project activity. Because structural projects can shift meaningfully between periods, sales remain exposed to order and geographic volatility.

Customer concentration and the composition of backlog also create execution risk. Five customers represented about 45% of fiscal 2026 net sales, and management said losing any of these customers without replacement could materially affect the business. As of May 31, 2026, 92% of backlog value was tied to aerospace/defense customers, up from 75% a year earlier, while structural customers accounted for only 5%. This mix raises sensitivity to program timing and federal spending, as government contracts may be reduced or terminated at the government’s election.

Profitability has also come under pressure. Gross margin slipped to 44% in fiscal 2026 from 46% a year earlier, while operating income declined 24% to $7.3 million and net income fell 15%. Research and development costs rose 75% to $0.8 million, or 1.9% of revenue, amid increased aerospace/defense activity. The company also recognizes a meaningful portion of revenue over time on fixed-price long-term contracts, making results sensitive to estimates of labor, material and overhead costs.

Inventory and competitive pressures are additional risks. Taylor Devices’ maintenance and other inventory is particularly vulnerable to obsolescence because its end markets experience rapid technological change and frequent product introductions. The company disposed of $0.3 million of obsolete inventory in fiscal 2026 and recorded a $0.2 million provision for potential obsolescence, versus no provision in the prior year. Maintenance and other inventory rose 9% to $1.2 million, while inventory turnover eased to 2.6 from 2.7. Taylor Devices also competes with domestic and foreign suppliers and alternative seismic-protection technologies, while technological advances could reduce demand or intensify pricing pressure in some product categories.

Stock Valuation

From a valuation perspective, Taylor Devices appears relatively expensive. Currently, it is trading at a trailing 12-month EV/sales multiple of 3.69X compared with the past five-year median of 1.59X and the industry’s figure of 3.38X. It is higher than that the company’s peers, Mueller Water Products, Inc. MWA and Broadwind, Inc. BWEN. The metrics for both peers stood at 2.51X and 0.48X, respectively.

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Can TAYD Power Through the Challenges?

Taylor Devices is supported by a sharply stronger backlog that improves revenue visibility. At May 31, 2026, backlog reached $52.8 million, up from $27.1 million a year earlier. The company expects to recognize the majority of its remaining backlog during fiscal 2027, while a $19 million non-project order carries scheduled deliveries through fiscal 2030. Revenue from non-project business also increased 22% in fiscal 2026, supporting future sales.

Aerospace and defense demand remains another key support. Sales to these customers increased 1% in fiscal 2026 and represented 66% of total net revenue. Taylor Devices also retains strong financial flexibility, with $0.9 million million in cash, no borrowings under its $10 million credit line and sufficient liquidity to fund operations and planned capital improvements.

Wrapping Up

While strong backlog, solid aerospace and defense demand, and ample liquidity support Taylor Devices’ prospects, revenue volatility, margin pressure, customer concentration and project-timing risks remain key concerns for investors. Also, the stock seems overvalued at the moment. Therefore, a decline in share price may be a signal for investors looking to add the stock to their portfolios to wait for a better entry point.

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

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