Hammond Power Solutions (TSX: HPS.A) has been one of the standout growth stocks on the Toronto Stock Exchange lately. It generated an extraordinary 625% return over three years, leading to its inclusion on the 2026 TSX30 ranking. The fast-growing manufacturer of dry-type electricity transformers and power quality equipment has capitalized directly on the secular tailwinds of grid electrification and the artificial intelligence (AI) data centre investment boom. As the company prepares to report its third-quarter earnings, probably next week on October 27 (unconfirmed), long-term investors should keep a close watch on one critical operational health indicator: its order backlog.

Strong regional performance driving surging orders

By the end of the second quarter of 2026, Hammond Power’s order backlog was 96.9% higher than it was at the end of the second quarter of 2025. This massive year-over-year surge underscores relentless market demand across North America, led by its U.S. and Mexico geographical segment where quarterly revenue surged 73% year-over-year.

Chief Executive Officer Adrian Thomas noted that demand continues to be propelled by heavy data centre buildouts, power infrastructure upgrades, and industrial electrification. Although Canadian sales fell 23.7% due to project timing and broader market softness, strong U.S. execution lifted overall consolidated revenue by 44.7% year-over-year.

Momentum remains strong, overall.

How Hammond Power reports its backlog metric

Backlog is a precursor to future revenue. At Hammond Power, backlog represents “all unfinished customer orders”. To deeply understand Hammond Power’s backlog, investors must evaluate how management communicates this metric.

Unlike many industrial capital goods manufacturers, HPS does not publish absolute dollar figures for its order backlog in its financial statements. Instead, management reports backlog movement strictly as relative percentage shifts alongside qualitative commentary. That’s understandable, as customers may cancel or alter orders any time, especially when shipping dates aren’t confirmed. And customers for such capital equipment often aren’t so sure about such dates at order placement. So its ok to be conservative about the hard numbers.

However, since Hammond Power’s exact backlog dollars remain proprietary, Bay Street often evaluates Hammond Power’s demand trajectory by comparing sales growth against the company’s annualized manufacturing capacity, which management has been expanding toward the $1.2 billion mark. This capacity recently expanded in September.

Similarly, while balance sheet disclosures show contract liabilities; representing customer prepayments and deposits (deferred revenue) rising to $10.3 million at the end of the second quarter, up from $5.9 million at year-end 2025; this accounting measure reflects only a narrow fraction of total unfulfilled customer commitments.

Hammond Power Solutions Backlog growth rates

Understanding HPS stock’s sequential contraction versus long-term demand

Heading into next week’s third-quarter earnings release, investor concerns center on whether the backlog will expand further or continue a slight sequential contraction noted in June.

On a quarter-over-quarter basis, the second-quarter 2026 backlog dipped 6.9% from the first quarter and contracted by 3.1% from December 2025 year-end levels as record quarterly shipments exceeded new order bookings.

Rather than indicating an operational slowdown, this minor sequential decline demonstrates the company’s continued success in converting unfulfilled orders into recognized revenue. Following management’s September 22 announcement regarding expanded manufacturing capacity across North America, Hammond Power can now process custom transformer orders faster, reducing customer lead times and improving fulfillment efficiency.

The strategic investment question for the third quarter is how this added production capacity impacts backlog dynamics over the coming quarters.

On one hand, faster manufacturing throughput accelerates backlog conversion into revenue, which could naturally pull down total backlog levels if order intake remains static. On the other hand, expanded capacity may allow major data centre operators and utility customers to place even larger bulk orders, knowing that Hammond Power can meet tighter delivery schedules. If order intake adjusts upward to match this higher capacity, the business could establish a new, higher equilibrium of recurring order flow.

Investor takeaway

With its recent margin expansion supported by pricing power and a favourable custom product mix, Hammond Power stock is facing its third-quarter earnings release from a position of operational strength. Watching how management balances rapid order conversion against fresh booking momentum on October 27 (unconfirmed date) will offer the clearest window into the stock’s next growth leg.

The post I’m Watching Hammond Power’s Backlog, Now Nearly Double Last Year’s appeared first on The Motley Fool Canada.

More reading

• I’m Betting on Hammond Power After a 45% Sales Jump
• AI Needs More Than Chips: These Canadian Stocks Have Something it Needs
• Hammond Power Solutions Stock Rides the Grid Electrification Boom to a 625% Gain
• Hammond Power Solutions Stock Could Cash in Big on the Data Centre Boom
• TSX Today: What to Watch for in Stocks on Wednesday, September 23

Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Hammond Power Solutions. The Motley Fool has a disclosure policy.

When the Toronto Stock Exchange revealed its 2026 TSX30 ranking of top three-year growth performers on September 9, industrial heavyweight Hammond Power Solutions (TSX: HPS.A) stock secured a prime spot — at number 13 out of 30. Driven by an insatiable global appetite for power infrastructure that necessitated investments in additional factory capacity, Hammond Power’s revenue surge propelled the stock to an impressive 625% capital gain over the three-year measurement window to June 30, 2026.

The Canadian growth stock’s strong capital gains was enough to turn a $1,000 investment into $7,250 in just 36 months!

What propelled Hammond Power Solutions stock?

What transformed a traditional industrial manufacturer into a market-topping growth engine? The answer lies at the intersection of artificial intelligence (AI) data centres, electrical grid modernization, and global industrial electrification.

Hammond Power Solutions wasn’t a speculative tech startup when it began to soar. The business traces back to a century-old 1917 manufacturing stalwart. It produces dry-type power transformers, power quality products, and custom magnetics.

As tech giants rush to construct high-density AI server farms, standard power setups no longer cut it. Modern AI racks require custom transformers to handle massive electrical loads safely and efficiently. Data centre sales exceeded 30% of Hammond Power’s total revenue by the second quarter of 2026 (Q2 2026).

In Q2 2026, revenue surged 44.7% year over year to $324.8 million, led by a 73% increase in U.S. and Mexico shipments. Operating leverage kicked in cleanly: adjusted earnings per share (EPS) rose 60.5% to $2.76. Meanwhile, Hammond Power Solutions’s order backlog sits nearly 97% higher than a year ago, providing investors and management with multi-year revenue, earnings and cash flow visibility.

Can HPS.A stock keep rising?

Hammond Power stock has recently experienced a temporary correction as the market digests recent strategic moves, including capital investments, and acquisitions activity. Canadian sales, down 11.1% during the first half of 2026, softened as the local market experiences a general softness and increasing price competition.

The growing business is actively building out its global manufacturing footprint to stay ahead of structural demand. Gross margins have marginally expanded over the past 12 months as Hammond raised prices while growing demand enabled higher factory utilization.

Hammond closed a $365 million transformational acquisition of AEG Power Solutions in June, broadening its footprint across Europe and Asia while expanding its power electronics portfolio.

Hammond’s total addressable market (TAM) continues to expand as electrification demands extend beyond cloud computing into renewable energy integration and electric vehicle (EV) grid upgrades. Acquisitions expand this TAM, and they could be accretive — if integrated well.

Should you buy the dip?

Following a 22% pull-back from its all-time highs, HPS.A stock trades at a forward P/E of 29. Shares trade at a premium compared to legacy industrial peers, it remains reasonable given its potential to grow revenue at a 40% over the next two years. Earnings could surge as well.

However, growth oriented investors should keep a few downside risks in mind: input cost variability, capital expenditure cyclicality, and integration risks following a recent significant acquisition.

Price fluctuations in raw materials like copper and electrical steel can compress gross margins if price adjustments lag inflation. Any temporary pause or digestion phase in hyperscaler AI capex spending could decelerate short-term order momentum, and successfully integrating AEG Power Solutions across international markets will require disciplined operational execution.

Investor takeaway

Hammond Power Solutions stock continues to sit at the center of the grid modernization, the global energy transition and the AI hardware arms race. But I wouldn’t expect another 600% surge over the next three years as the law of large numbers creeps in to drag performance. That said, HPS.A stock remains a promising core holding for growth investors looking for tangible, real-economy exposure to the AI infrastructure boom.

The post Hammond Power Solutions Stock Rides the Grid Electrification Boom to a 625% Gain appeared first on The Motley Fool Canada.

More reading

• I’m Watching Hammond Power’s Backlog, Now Nearly Double Last Year’s
• I’m Betting on Hammond Power After a 45% Sales Jump
• AI Needs More Than Chips: These Canadian Stocks Have Something it Needs
• Hammond Power Solutions Stock Could Cash in Big on the Data Centre Boom
• TSX Today: What to Watch for in Stocks on Wednesday, September 23

Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Hammond Power Solutions. The Motley Fool has a disclosure policy.