Up 1,300% in 5 Years, Yet This Canadian Stock Is Still “Dirt Cheap”

Amid the global electrification boom and exploding demand from data centers, Canada-based Hammond Power Solutions (TSX: HPS.A), a transformer manufacturing company, has been rising at an astonishing pace. Even after delivering a cumulative stock return of over 1,300% in the past five years, several analysts insist that this under-the-radar standout remains deeply undervalued—with plenty of room left to grow.

With decades of expertise in magnetic transformer design and production, Hammond Power specializes in dry-type transformers that use air instead of oil for cooling. This technology offers superior safety and environmental benefits, making these transformers ideal for indoor settings with strict fire safety requirements—such as hospitals, commercial buildings, and data centers.

Its client base spans numerous industries including oil and gas, mining, steel, water treatment, and wind power generation, with particularly strong recent growth coming from data center demand.

Impressive Growth Meets Undervaluation

Over the five-year period ending December 2024, Hammond reported remarkable results:

Revenue increased by 145% to CAD$788 million, representing a compound annual growth rate (CAGR) of 19%.

Earnings per share soared 360% to CAD$6.01, reflecting a CAGR of 36%.

What’s more, the company has maintained high-quality profitability throughout this expansion: return on equity (ROE) consistently exceeded 25%, return on investment (ROI) stayed above 20%, and return on assets (ROA) ranged between 15% and 19%. Importantly, these results were achieved with minimal debt and strong cash flow generation.

Even after its spectacular rally, the stock remains attractively valued:

It trades at a forward P/E ratio of just 17x,

Which drops to 15x based on next year’s earnings estimates.

The price-to-cash-flow ratio is as low as 10x, and price-to-book value is only 4x.

Compared to tech companies with similar growth profiles that often trade at 30x earnings or higher, this industrial manufacturer appears significantly undervalued. Analysts suggest that the market has yet to fully price in Hammond’s high-value manufacturing capabilities and sustainable growth trajectory.

Three Key Growth Catalysts Ahead

Looking forward, several catalysts are expected to drive continued growth:

Electrification Trend: Global efforts toward electrification are accelerating, steadily increasing demand for voltage regulation equipment like transformers.

Data Center Expansion: The company’s order backlog grew 18% year-over-year in Q1, largely driven by data center-related demand.

Capacity Expansion: With new production facilities soon operational and the recent acquisition of Micron Industries—which brings advanced manufacturing capabilities and new customer segments—Hammond is well-equipped to support future growth.

Management also indicated during the latest earnings call that they are in talks regarding multiple acquisition targets. Supported by its leading market position and solid balance sheet, the company is well-positioned to pursue value-enhancing M&A opportunities.

Although Hammond Power Solutions has already delivered extraordinary returns, this may only be the beginning of a much longer growth story. For value-oriented investors seeking high-quality growth stocks, the current valuation still offers an attractive margin of safety and compelling upside potential.