Dealmaker’s Diary: How a 32-Year “Sleeper” Just Delivered 186% Growth

Alpesh Patel|June 12, 2025

For 32 years, this company chugged along as a reliable but unremarkable performer.

Then something changed.

Net income exploded 186%. Revenue jumped 23%. Profit margins expanded as pricing power kicked in.

What transformed this steady operator into a growth machine?

The global infrastructure boom, particularly in sustainable energy.

This $2 billion-plus company provides the engineering, procurement, and construction services that make renewable energy projects possible. As the world rushes to build clean energy infrastructure, demand for their expertise is skyrocketing.

The numbers tell an incredible story:

• Alpha that “knocks the ball out of the park”
• A Sortino ratio above 1
• CROCI figures that put it in elite company

This isn’t a speculative venture with flashy promises. It’s a fundamental transformation of a proven business model.

Click on the image below for the name and ticker.

Transcript

Hello, friends. Welcome to another Stock of the Week. I know I get excited about these. A lot of research comes across my desk each week, and my team filters it. We look at the data and see what is worth being a Stock of the Week as part of my Dealmaker’s Diary.

Argan (AGX) is a leading provider of engineering procurement and construction.

Not exactly headline-making and exciting in the breathless excitement of all these newsletters and tip sheets, because we go for data. We go for research. We go for solidity, even if they’re unglamorous.

The stock has gained considerably. That doesn’t put us off as long as the fundamentals are there. The company’s focus on low carbon and zero carbon energy solutions positions it well amid the global shift toward sustainable energy. Whatever you think about sustainable energy, the need for it or not, the important thing is demand.

I hosted an event last year in the U.K. Parliament on climate change. I said, whether you believe in it or not, you’ve got to think like a businessperson. There’s demand. See if we can meet that demand.

When I look at this company and see a 23% year-over-year increase in revenues, when I see a triple-digit 186% rise in net income, and a market capitalization of more than $2 billion, that gets my attention.

The P/E ratio – we’re going to come to that and other numbers in a second. They don’t necessarily all tick the boxes, but it’s the balance overall.

As you know, I also like to educate and inform everybody on AI with every company we look at. I like to do that because, first, this is the biggest story of our generation, so we might as well learn. Also, I want to make sure these companies are at the forefront of that.

They’re using AI for predictive maintenance. When I think about it, of course they do. That makes sense. In fact, if they hadn’t, I’d be worried.

Energy demand forecasting – I was at an event today at the London Stock Exchange where technology companies were explaining just how problematic this is. If you can’t forecast energy demand accurately, the inefficiency, the costs, and the dangers of not being able to supply energy, let alone not being able to supply it at the best possible price… it can cause a cost-of-living crises.

That’s a major issue. Project cost optimization – again, procurement is the field they’re in. You’d expect them to be trying to reduce those costs. Supply chain optimization – you could say that about almost any company, and I’m glad they’re also doing regulatory compliance and ESG reporting. We’re seeing a lot of AI being used there, and workforce and safety management.

When you think about it in hindsight, of course they use it for those things. I’m glad they do. I’m less bothered now – this might make me sound like an evil capitalist – less bothered about safety management in the sense that traditional ways were good. This adds to the bottom line, probably hardly makes a difference. I’m interested in bottom-line AI applications.

Where are we? Well, on my proprietary Growth-Value-Income rating, it’s a 7. Anything with a 7, 8, 9 or 10 that weighs valuation, growth, and income – that’s good.

The forecasted P/E ratio means you’re paying $35.90 for every future dollar of profit. That is expensive. There’s no way of getting around it, both in terms of its historical P/E and relative to the economy as a whole and to its industry.

Having said all of that, the CROCI – the cash return on capital invested, the number used by Goldman Sachs Wealth Management – is 30%. The top quartile of companies by CROCI generate 30% per year as a basket of stocks. That’s probably one of the highest numbers, if not the highest, I’ve ever seen.

Well, not quite ever seen, but ever seen with the other boxes ticked as well.

Sortino above 1 is rare for stocks. It means high average return, low downside risk.

The volatility is high. That volatility is high partly because it’s upside volatility, not downside. So I don’t mind that volatility being high.

Alpha – the ability to outperform the markets – knocks the ball out of the park, you might say.

If I was going to give the most optimistic, reasonably optimistic projection, that’s the one on screen.

There’s a danger. The danger is up until about – well, 2024. So up until January, February 2024, the company was chugging along. All of a sudden, it has exploded to the upside.

Is there a danger it could revert back to $95, even back to its longer-term average price gain? Of course, there’s always a danger. There’s always a danger with a lot of things.

Will it continue at this exponential rate? Of course not. Exponential price movements don’t tend to continue.

Where are we? Well, I think by putting that reasonable projection, even if that took two years, I’d be fine with it. Even if it was half of that in one year – 50% in a year – I’d be fine with it.

I think we’ve measured the risk, seen the upside, seen that you can elongate your time frame or you can reduce your gain projections. Either way, that’s one way of mitigating risk and managing expectations, and those are important things as well.

One other thing – discounted cash flow shows slightly undervalued apparently.

It’s nice. Tick that box. Nice to have. Not essential. Nice to have on a discounted cash flow.

There it is. Hope you found it as interesting, informative and educational as I did. Thank you.