With the local earnings season on the horizon, savvy investors might find opportunity in the oversold corners of the S&P/ASX 300 Index (ASX: XKO).
One such company is PWR Holdings Ltd (ASX: PWH), the high-performance cooling systems specialist whose share price has fallen 36% since July 2024.
That decline, however, may be more about short-term noise than a shift in long-term business fundamentals.
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What does PWR Holdings do?
Founded in 1987 and headquartered in Queensland, PWR Holdings designs, tests, and manufactures advanced cooling technologies.
The company's solutions serve a range of industries, including:
- Motorsport, where PWR supplies leading teams across Formula 1, NASCAR, and Supercars
- Automotive OEMs, developing cooling products for manufacturers
- Aerospace and defence, providing high-spec cooling for sensitive applications
- The automotive aftermarket, catering to the global performance vehicle community
With facilities in Australia, the United States (via its 2015 acquisition of C&R Racing, now PWR North America), and Europe, PWR has built a truly global footprint.
What's gone wrong?
PWR shares have come under pressure in the past 12 months. Much of the damage followed a softer-than-expected interim result and a rise in capital expenditure linked to a major new factory build.
Profit margins have come under pressure as the business invests ahead of future growth. Understandably, this spooked the market — particularly as interest rates and global economic uncertainty continue to weigh on investor sentiment.
Management is responding
Founder and CEO Kees Weel has acknowledged the need to tighten up costs in response to the current trading environment. In a recent release, Weel said:
We are reducing our cost base to be more aligned to the current trading environment while balancing the opportunities we are pursuing in our Aerospace & Defence business, which continues to give us confidence in this market.
That confidence may be well placed. In January, PWR's North American subsidiary C&R Racing secured its largest aerospace and defence order to date — a US$5.5 million ($8.9 million) contract to supply advanced cooling solutions for a US government project.
The order, scheduled for delivery this calendar year, marks a significant milestone in PWR's long-term strategy to expand in the defence sector.
Why it could be short-term noise
Despite recent volatility, the underlying business remains robust. In fact, when investors zoom out, the numbers tell a different story.
Over the past five years:
- Return on equity has consistently been above 15%
- Sales growth has averaged over 15% per annum
- Earnings growth has regularly exceeded 10%
That kind of stability, in a business that still has room to grow, suggests the market may be overlooking long-term value.
Analysts at Goldman Sachs, for example, recently named PWR as one of the ASX 300 stocks with potential to rise 15% to 30%, citing its strong position in high-performance engineering and defence markets.
PWR Holdings may not be on every investor's radar, but with shares down sharply and earnings season fast approaching, it's one ASX 300 stock worth watching closely.
If the company can demonstrate continued progress in its global expansion and justify its recent investment cycle, the current share price could prove to be a long-term buying opportunity.
