There are moments when the market simply misjudges a business. Whether it’s due to short-term headwinds, misunderstood earnings, or just general market malaise, some stocks take a hit despite delivering solid performance. That seems to be the case with Hammond Power Solutions (TSX:HPS.A), a long-time manufacturer of dry-type transformers and power-quality products.
After soaring in 2023 and 2024, the stock is down about 10% from its peak earlier this year. But that drop doesn’t reflect what’s actually happening under the hood. In fact, Hammond is firing on all cylinders and quietly positioning itself for an even stronger back half of the year. Let’s take a closer look at what’s going on.
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Recent market moves
In its first-quarter 2025 results, Hammond reported revenue of $201 million, which was up 5.6% from the same period last year. That might not be the kind of blockbuster growth some investors expect from a top industrial name, but it’s more than respectable given the uncertain macro backdrop. What’s more important is that gross margin held steady at 31.5%, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $30.9 million, or 15.4% of sales. These aren’t signs of a Canadian stock losing its edge.
But the real standout number? Backlog. Hammond closed the quarter with a backlog that was up 17.7% compared to the end of 2024. In plain terms, demand is still coming in strong. That backlog growth is even more impressive when you consider that the Canadian stock saw a decline in custom shipments earlier in the quarter. Rather than signal a drop in business, it suggests that Hammond is simply in a transition period as it ramps up a new factory.
CEO Adrian Thomas summed it up clearly in the earnings release: “We are pleased to report that same‑quarter sales grew 5.6% to $201 million, underscoring the resilience of our business in a period marked by trade‑tariff uncertainty… When combined with our new factory coming online faster than planned, we can anticipate a favourable shift towards more custom product shipments in the latter half of the year.”
Down, but not out
Meanwhile, earnings per share (EPS) came in at $2.20. After adjusting for a spike in share-based compensation, EPS was $1.60, which still gives Hammond stock a price-to-earnings ratio of 18 at recent prices. That’s cheap for a Canadian stock with this kind of margin profile and top-line consistency.
So, why is the stock down? It could be a mix of things. Some investors might have been hoping for higher revenue growth. Others may have overreacted to the drop in custom shipments, without taking the time to read the CEO’s comments or look at the backlog. And in a market where artificial intelligence and tech names are dominating the conversation, a transformer manufacturer in Guelph, Ont. doesn’t exactly grab headlines.
But that’s also what makes it such a compelling opportunity. While the market’s attention is elsewhere, Hammond is quietly expanding its capacity, holding margins firm, and growing earnings. The infrastructure buildout across North America, combined with the electrification trend and reshoring of manufacturing, could serve as long-term tailwinds for years to come. Hammond is one of the few companies that will benefit at every stage, from utilities to industrial facilities to data centres.
Bottom line
It’s worth noting that the Canadian stock is still founder-influenced, well-run, and disciplined when it comes to growth. Unlike many industrial peers, it hasn’t taken on excessive debt or diluted shareholders unnecessarily.
In short, this is a high-quality business with expanding demand, solid margins, and a strong balance sheet. And right now, it’s trading like a Canadian stock with declining earnings and weak prospects. The market got this one wrong.
That doesn’t mean the Canadian stock will bounce back tomorrow. But for long-term investors looking for a well-managed industrial company tied to real growth trends, Hammond looks like a magnificent bargain at current levels. When the next earnings drop or when custom shipments pick back up in the second half, don’t be surprised if the market changes its tune. Until then, the discount is yours to enjoy.
