The value of stocks is typically dictated by the earnings forecast. This is how much profit per share analysts believe the company will make. Some stocks are covered by 50 or more analysts while others, like British small-caps, are often only covered by one or two.
Likewise, this US stock, DXP Enterprises (NASDAQ:DXPE), is only covered by one analyst, and this analyst is vastly underestimating its performance, according to data published online.
What’s more, over the last month, this stock’s been massively sold off despite a huge earnings beat. It’s nothing to do with the company, but Donald Trump’s economic and trade policies which have caused a sell-off in US stocks coupled with concerns about frothy valuations in the artificial intelligence (AI) segment.
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A closer look at the figures
According to the one analyst covering DXP Enterprises — a lead provider of maintenance, repair and overhaul products — the stock’s currently trading at 18.5 times forward earnings and 17.4 times earnings from the past 12 months. This actually suggests earnings are going in reverse.
However, the reality is anything but this. Simply, the analyst hasn’t revisited its forecast since the recent earnings blowout. In Q4, the company delivered earnings per share (EPS) of $1.38 — $0.49 ahead of the estimate. This was up from $1.12 a year ago.
In short, recent quarterly earnings suggest that the current forecast is vastly under appreciating the company’s growth trajectory. In fact, the current earnings forecast suggests that earnings will decline by 25% in the second half of 2025 — that’s just not going to happen.
Personally, I’m forecasting EPS of $5.50 for 2025. I believe that’s a conservative estimate assuming the performance from the past two quarters can be sustained throughout 2025. And at the current share price, this would give us a price-to-earnings (P/E) ratio of just 14.1 times.
What’s driving growth?
DXP Enterprises’ impressive growth trajectory’s being driven by a combination of strategic acquisitions, strong project activity, and a focus on high-margin markets. The company’s Innovative Pumping Solutions (IPS) segment has been a standout, with revenue surging 47.7% in 2024, fuelled by robust demand in energy and water/wastewater projects. The backlog for these sectors remains elevated, supporting sustained revenue growth.
Meanwhile, the Supply Chain Services (SCS) segment, though flat in 2024, is expected to benefit from new customer accounts and enhanced technology-driven strategies. And finally, the Service Centres segment, which accounts for the majority of revenue, grew around 9% over the year, with growth in diversified end markets like safety services and metalworking.
The bottom line and a caveat
Starting with the caveat first. It’s debt. The company, with a market-cap of $1.2bn, currently has total debt worth $676.3m and $148.3m of cash. It’s not a huge net debt position, but it needs to be taken into account as investors assess the valuation proposition and as we assess how easy that debt is to service.
However, DXP meets several of the criteria for Peter Lynch’s (an incredibly successful American investor and fund manager) Perfect Stock, combining strong growth, an understandable business model and attractive fundamentals.
I’ve recently added this one to my portfolio, and it’s been a wild ride as I’m back where I started. Around $80 a share, this could be an incredible opportunity to consider.
