Looking for a top TSX industrial sector growth stock with a century-long track record and immense growth potential? Hammond Power Solutions (TSX:HPS.A) stock might be your answer. This literal powerhouse has delivered an astounding 1,750% return over just five years, yet now sits at a compelling discount.
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Why Hammond Power stock deserves your attention in May
Hammond Power Solutions stands tall among Canadian industrial companies since its founding in 1917. The company specializes in power transformers and distribution infrastructure – essential components for an increasingly electrified world that’s modernizing its power grids and increasing infrastructure as power-hungry artificial intelligence (AI) data centres emerge.
This best industrial stock to buy has experienced a significant 34.5% drop from its recent 12-month highs, trading 27% lower year-to-date. For value-focused and growth-at-a-reasonable-price investors, this recent drop presents a rare opportunity to acquire shares of a quality business at a substantial discount.
The stock market misunderstood a temporary slowdown
The dramatic pullback in Hammond Power stock stems from slowing revenue growth, which decelerated to 5.6% year-over-year during the first quarter (Q1 2025) amid trade policy uncertainties. Some investors worry about potential transformer market saturation just as Hammond expands manufacturing capacity. However, these concerns appear overblown when examining the complete picture.
Strong fundamentals support Hammond Power’s long-term growth
Hammond Power’s recent quarterly report actually contains numerous positive signals. The company reported a 17% year-over-year increase in order backlog alongside strong standard product shipments exceeding management expectations during the first three months of 2025. The data centre segment performance remains robust, offsetting a potentially temporary weakness in electric vehicle (EV) infrastructure. Strategic price increases implemented in April 2025 should improve margins this quarter.
Management directly addressed investor concerns about demand in an earnings call in May, noting that “the growing backlog indicates that certain sectors, mainly data centres, are still active and that this will continue to propel demand for custom power products.”
Macro tailwinds provide a long-term catalyst
This top TSX industrial stock sits at the intersection of several massive global trends. The modernization of electricity distribution systems worldwide continues unabated. Growing power demands from artificial intelligence infrastructure create sustained demand. Additionally, the continued electrification of vehicles and transportation systems requires significant grid upgrades. These structural trends aren’t disappearing, they’re accelerating as countries race to upgrade aging infrastructure.
Hammond’s clear competitive advantages
Hammond Power Solutions outperforms industry peers across nearly every profitability metric. With an operating margin of 15.8% versus the industry’s 9.9% and a net profit margin of 11.2% compared to the industry average of 4.8%, Hammond demonstrates exceptional operational efficiency. The company generates $11.20 in net profit per $100 of sales – more than double the $4.80 industry average. Its return on invested capital (ROIC) stands at an impressive 24.1% versus an industry average of 7.3%. These numbers demonstrate the TSX industrial stock’s superior operational efficiency and potentially sustainable competitive advantages.
A significantly undervalued Hammond Power stock
Despite its operational excellence, Hammond Power stock trades at a substantial discount to peers. Its historical price-to-earnings (P/E) of 12.6 pales compared to the industry average of 42.1. The company’s enterprise value-to-earnings before interest, tax, depreciation and amortization (EV/EBITDA) multiple sits at just 8.3 versus the industry’s 15.8, while its forward P/E is a modest 12.5. Perhaps most compelling is Hammond’s forward price-earnings-to-growth (PEG) ratio of 0.5, suggesting the stock is significantly undervalued given its earnings growth potential.
Strategic moves position Hammond for future success
Recent strategic initiatives position Hammond for sustained growth. The company has expanded production capacity to meet increasing demand and is developing a new manufacturing facility in Monterrey, Mexico, with first products expected in 2025. Its strategic acquisition of Micron enhances its U.S. manufacturing presence and market penetration for its brands, while limited tariff exposure thanks to USMCA-compliant products minimizes trade risks.
The Foolish bottom line
The best industrial stock to buy right now might be hiding in plain sight. Hammond Power Solutions stock offers a compelling combination of a proven business model, industry-leading profitability, significant growth potential, and attractive valuation. The current pullback presents a rare opportunity for long-term investors to acquire shares of this top TSX industrial stock at a substantial discount. With multiple catalysts on the horizon and structural demand trends showing no signs of slowing, Hammond Power stock deserves serious consideration for any “buy and hold forever” portfolio.
