TipRanks Smart Growth Portfolio #35: In The Flow
Dear Investors,
Welcome to the 35th edition of the Smart Growth Portfolio and Newsletter.
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Portfolio News
❖ Itron (ITRI) reported strong third-quarter 2025 financial results, with revenue coming in at $582 million – versus the consensus of $578.5 million – and adjusted EPS of $1.54 far outpacing the expectations of $1.48. Revenue declined by 5% year-over-year, less than was expected. The decrease is due to both tough comps (Q3 2024 was notably strong on several key parameters, including revenue and earnings per share) and to portfolio optimization and project deployment timing.
Despite an ongoing revenue softness – with weakness in legacy business and hardware not yet fully compensated by growth in ITRI’s Outcomes division, providing data analytics, AI, and other advanced capabilities – the company delivered record gross margin, adjusted EBITDA, and free cash flow. The company’s gross margin improved by 360 basis points to 37.7%, driven mainly by favorable customer and product mix. Adjusted EBITDA arrived at $97 million, increasing 10%, while FCF expanded by 55 million to $113 million. Itron’s total backlog stood at $4.3 billion, up from $4.0 billion in the prior year. Quarterly bookings totaled $380 million, reflecting ongoing demand accelerated by infrastructure modernization. These results indicate operational efficiency improvements and cash flow strength despite top-line pressures.
Project deployment schedules are being extended, especially for hardware-oriented projects, due to complex utility environments and regulatory scrutiny. However, no projects have been canceled and the opportunity pipeline has grown 25% since the start of the year alone. The acquisition of Urbint, a SaaS platform for emergency preparedness and response, is expected to close in Q4 2025, with significant customer overlap and cross-platform synergies anticipated.
The company released an updated guidance for Q4 and full fiscal year 2025. For Q4, the company expects revenue of $555-$565 million, down from the previously guided $586 to $600 million range and implying a decrease of 9% year-over-year at midpoint. Despite this cautious update, adjusted EPS – now seen at $2.15-2.25 – is a notable increase from the prior guidance of $1.43-1.55, reflecting a year-over-year expansion of roughly 7%.
For the full fiscal 2025, revenue is expected to be within a range of $2.35-$2.36 billion, implying 2% normalized growth, slightly down from the previous outlook of $2.38 billion at midpoint. The updated non-GAAP EPS guidance at $6.84-6.94 (up 23% YoY) is an increase from the earlier range of $6.00 to $6.20 per share. 2027 targets remain on track.
Despite the many positives in the report and the raised earnings guidance, the lowered revenue outlook amid a stumble in the broad tech sector performance has sunk Itron’s stock post release. Although our long-term investment case remains intact, we are planning to watch the developments closely for a while to see whether the stock can regain lost ground and return to gains.
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❖ The bulk of the Smart Growth Portfolio companies is expected to report over the next week. Companies that will release their quarterly results over this period are EverQuote (EVER), ACM Research (ACMR), MKS (MKSI), Backblaze (BLZE), Clear Secure (YOU), Arlo Technologies (ARLO), Innodata (INOD), and Atlanticus Holdings (ATLC). Following this avalanche, only two holdings will be left to report: Monday.com (MNDY) on November 10 and Nutanix (NTNX) in the end of the month.
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❖ ACM Research (ACMR) released a preliminary Q3 2025 update, projecting total shipments of $257-262 million, roughly flat year-over-year – likely reflecting tough comparisons against Q3 2024, when the company recorded above-trend shipment growth. Meanwhile, revenue is expected at $264-267 million, up 29-31% YoY, underscoring strong performance despite shipment stagnation, challenging comps, and continued headwinds from U.S.-China export controls. The gap between revenue and shipments may reflect a shift toward higher-value systems, timing of revenue recognition, or pricing and currency effects. Full details will be shared during the company’s November 5 earnings release.
Most of ACMR’s sales come from its majority-owned Chinese subsidiary, ACM Shanghai, which drives the bulk of revenue and profit. The subsidiary reported a 19.6% YoY increase in Q3 revenue, with non-GAAP net profit up more than 41% and net profit attributable to shareholders (GAAP earnings that belong to the parent company’s shareholders) soaring over 81%. This strong growth highlights ACM Shanghai’s improving profitability and accelerating revenue expansion.
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Under Review
❖ We are keeping Monday.com (MNDY) under review following a strong decline over the past three months and persistent weakness across the software sector, despite strong fundamentals and analyst support.
The stock has dropped roughly 15% year-to-date, reflecting investor rotation out of SaaS names rather than any deterioration in company performance.
MNDY’s Q2 results were solid, with revenue and non-GAAP EPS surging past analyst estimates, while enterprise customer additions remained robust. Guidance for Q3 and full-year 2025 points to ~26% annual growth with a 13% operating margin and 26-27% FCF margin. Yet the stock sold off sharply after management’s cautious tone on growth and margin trajectory, with R&D spending rising and GAAP operating profit slipping into negative territory.
The market reaction reflects broader fears that “AI is eating software,” compressing multiples for even high-quality SaaS firms. Monday.com’s high forward P/E (~47) leaves little margin for error, and investors remain sensitive to any hint of slowing ARR or margin compression. While the company’s new AI tools – Monday Magic, Agents, and expanded automations – could meaningfully boost enterprise adoption, monetization is not yet visible in forecasts.
Analysts remain overwhelmingly bullish, with consensus price targets averaging $276 (45%+ upside) and revenue growth expectations of 22-30% through 2028. Institutions like JPMorgan have doubled their stakes this year, signaling confidence in the long-term story. But sentiment in the software space remains fragile, and MNDY continues to trade near $190 – a level that could either prove to be a base or a breakdown zone if momentum fails to stabilize.
Monday.com remains a fundamentally strong, cash-rich growth company with world-class products and execution. However, given the sharp technical deterioration and continued sector pressure, we’ll keep MNDY under review until its November 10 earnings report. A confirmed recovery or improving guidance could justify retaining it in the Smart Growth Portfolio – but if the stock fails to regain traction, we’ll likely exit rather than try to “catch a falling knife.”
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❖ We are keeping Clear Secure (YOU) under review following its underperformance over the past month, despite a rebound from mid-October’s local low.
The stock is down about 18% from its recent peak on September 22 despite several positive news items and announcements. YOU expanded CLEAR+ enrollment to travelers from 40 additional countries across Europe, Asia, and the Americas, enabling international visitors to expedite security screening at U.S. airports through the company’s network of over 150 lanes operating at 60 airports nationwide. Additionally, Clear announced an eGate pilot program designed to provide scalable security solutions ahead of the World Cup and America’s 250th anniversary celebrations.
Earlier, the company revealed a new identity verification solution developed in partnership with DocuSign. This solution leverages Clear’s B2B secure identity platform, CLEAR1, and its biometric verification technology to make it easier and more secure for people to verify their identity directly within the DocuSign agreement experience. The partnership aims to address the challenge of maintaining security amid the growing threat of identity fraud, driven by generative AI’s rising abilities.
Clear Secure’s broad push into finance, real estate, healthcare, and automotive verticals showcases its ability to leverage biometric identity solutions across diverse industries, unlocking new revenue opportunities. Together with extensive partnerships – recent examples include Fidelity National Financial, Nordic, Hackensack Meridian Health, and Snappt – these solutions strengthen its long-term potential. However, investors need to see at least some of these positive developments reflected in YOU’s bookings growth when it reports Q3 results on November 6.
The recent stock weakness may be driven in part by profit-taking after a ~55% rally from mid-July to mid-September, and was also likely exacerbated by worries about the government shutdown impacting Clear’s existing operations and delaying new contracts and regulatory approvals. If these concerns are quickly dispelled, this could lead to a relief rally – potentially even producing a short squeeze. YOU’s short interest is high at about 21% of its float, one of the highest in the software sector, reflecting entrenched negative investor sentiment.
While the company’s fundamentals remain intact and its expansion into various verticals is expected to continue driving growth, investors – along with some analysts like Wells Fargo – are questioning its government-dependent business model at a time when the Trump administration continues to send conflicting signals regarding federal spending plans.
Wells Fargo recently maintained a “Sell” with a price target implying a ~20% downside, citing concerns about the company’s business challenges, competitive risks, and financial outlook. In contrast, D.A. Davidson initiated coverage with a “Buy” rating and a Street-high PT of $45, which signals an upside of over 44%, citing optimism about Clear Secure’s growth potential, expanding partnerships, and the increasing adoption of its biometric identity solutions.
With analyst opinion mixed and the stock firmly in oversold territory, we will be keeping YOU under a magnifying glass at least until its earnings date.
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This Week’s Top Growth Pick: CECO Environmental (CECO)
CECO Environmental designs and delivers the industrial systems that keep factories, power plants, and refineries running within spec. Its equipment handles air quality, fluid movement, and process reliability across energy, manufacturing, pharma, semiconductor, infrastructure, and other markets. From pumps and separators to data-center noise control solutions, CECO engineers the machinery behind cleaner, safer, and more efficient operations. Built on decades of applied engineering, the company bridges industrial performance with regulatory precision – giving operators the tools to stay compliant, productive, and ready for the next cycle of modernization.
Source: CECO Environmental Website
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Clearing the Air
CECO’s story began in the 1960s, when it started designing air-pollution control systems for U.S. factories adapting to the first wave of environmental regulations. For decades it served as a quiet backbone of heavy industry – reliable, technical, but rarely headline-making. The transformation began only recently, when leadership decided that CECO should evolve from a steady supplier into a growth-driven industrial platform.
Over the past five years, the pace has quickened. In 2023, CECO acquired Kemco Systems, adding specialized water-recycling and energy-efficiency systems that opened the door to broader process-industry applications. It followed with the purchases of EnviroCare International and WK Environmental in 2024, both of which deepened its capabilities in air-scrubbing and wastewater-treatment systems. Later that same year came one of its most significant steps – the acquisition of Profire Energy for about $125 million. That deal added combustion-control and burner-management technology, strengthening CECO’s presence in the energy and process-equipment markets.
At the same time, the company began trimming legacy operations. In early 2025, CECO divested its Global Pump Solutions segment for roughly $110 million in cash – a move that sharpened its focus on higher-margin engineered systems and freed up capital for further expansion. The proceeds, together with an expanded $400 million credit facility, positioned CECO to keep acquiring and scaling without over-leveraging its balance sheet.
Behind these moves is a clear pattern – simplify, integrate, and scale. CECO has turned a patchwork of industrial components into a cohesive platform of engineered systems that tackle air, water, and energy performance challenges. The company that once sold equipment now sells outcomes – operational reliability, regulatory compliance, and process optimization. What began as an environmental-controls maker is emerging as a more agile, technology-infused industrial systems provider built for the next phase of modernization.
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Filtered for Growth
CECO Environmental earns its way by engineering, delivering, and maintaining systems that keep complex plants within spec – capturing emissions, controlling noise, and separating and treating process fluids – and then staying embedded through upgrades, parts, and service.
The business is organized around two operating pillars. Engineered Systems is the larger contributor – spanning custom, capital projects that integrate air-pollution control, acoustics, and fluid-treatment into power, energy, semiconductor, and advanced manufacturing sites. Industrial Process Solutions provides the shorter-cycle layer – filtration, abatement, thermal and flow-control components, replacements, and field services that keep those lines running day to day. In revenue mix terms, Engineered Systems represents roughly two-thirds of sales while Industrial Process Solutions the balance.
Differentiation comes from moving beyond static equipment toward technology-infused solutions. CECO increasingly ships modular architectures with embedded sensors, digital monitoring, and IoT-enabled analytics that track performance, compliance, and energy use in real time. That capability matters in high-spec environments – data centers that require precise noise and airflow control, semiconductor fabs with tight contamination tolerances, and automated factories that cannot afford unplanned downtime. It also expands lifecycle economics: more installed-base touchpoints, higher attachment of spares and upgrades, and recurring maintenance programs that smooth the project cycle.
Scale and execution are the second edge. CECO integrates design, fabrication, installation, commissioning, and aftermarket under one umbrella, which compresses lead times and reduces integration risk versus piecemeal, multi-vendor builds. The footprint is already wide – 25 principal operating facilities across 11 U.S. states and eight countries, serving customers in more than 40 countries – yet its share of the addressable domain remains modest.
That domain is large and expanding – industrial air, water, and process-efficiency markets are tracking toward the low-hundreds-of-billions globally by decade’s end, supported by modernization of legacy assets, stricter performance standards, and new load from data centers and advanced manufacturing. The gap is the upside: more high-spec wins in Engineered Systems, deeper penetration of the installed base via Industrial Process Solutions, and increasing attachment of digital monitoring create a clear path to incremental share gains.
U.S. policy adds durability without being the thesis – multi-year funding for PFAS mitigation1 and water-treatment upgrades provides steady demand across filtration and emissions projects. Strategically, the portfolio now tilts toward higher-value engineered systems while protecting the installed base through a tighter, service-rich process-solutions layer. The flywheel is straightforward: win on application expertise, execute reliably at scale, and compound share through lifecycle service and modular upgrades. That is how CECO converts compliance and performance requirements into durable customer relationships – and why its recognition and share are expanding in the most demanding industrial markets.
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1 – PFAS are long-lasting industrial chemicals targeted by new U.S. regulations and U.S. Environmental Protection Agency (EPA) funding, driving demand for advanced air- and water-treatment systems.
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Earnings in the Air
CECO Environmental’s Q3 2025 results were its strongest yet – setting multiple company records and extending a streak of four straight quarters beating analyst estimates on both revenue and non-GAAP EPS. The company posted record revenue of $198 million, up 46% year-over-year and well ahead of consensus expectations near $180 million. Orders reached a record of $233 million, up 44%, while backlog climbed to a record of $720 million, up 64% from the prior year. This surge reflected exceptional demand across power generation, industrial water, energy transition, and semiconductor end markets – sectors that now make up the backbone of CECO’s growth story.
Profitability followed the same trajectory. Adjusted EBITDA rose 62% year-over-year to $23.2 million, lifting the quarterly margin above 11%, compared with 6.8% a year earlier. Adjusted EPS increased 86% to $0.26, also exceeding Street forecasts. On a GAAP basis, net income surged to $14.3 million, driven by stronger project execution and the absence of prior-year restructuring costs. GAAP net margin reached 7.2% – the highest in company history – though inflated by a $59.8 million one-time gain from the sale of the Global Pump Solutions business. Excluding this divestiture benefit, non-GAAP net income was substantially lower, as CECO adjusts out transaction gains, acquisition-related amortization, and other non-recurring items. That gap between GAAP and non-GAAP results reflects the company’s ongoing portfolio reshaping rather than a change in underlying profitability.
Margins softened sequentially – gross margin declined to 32.7% from 36.2% in Q2 – reflecting project mix and seasonality. Management expects a rebound in Q4 as higher-margin projects are delivered and cost discipline takes hold. The company reaffirmed its full-year 2025 guidance of $725-775 million in revenue (up ~35% at the midpoint) and $90-100 million in adjusted EBITDA (up ~50%), with free cash flow conversion around 60% of EBITDA. Analysts’ midpoint expectations remain slightly below management’s, implying continued upside if order momentum persists.
For 2026, CECO issued initial guidance of $850-950 million in revenue (up 15-25% year-over-year) and $110-130 million in EBITDA, projecting margin expansion of 110-150 basis points. Orders are targeted to exceed $1 billion, with a book-to-bill ratio above 1.1 – signaling sustained backlog growth and strong visibility into next year’s production schedule.
Cash generation remains steady. CECO ended the quarter with $19 million in free cash flow and $1 million year-to-date, reflecting continued investment in large projects. The balance sheet is healthy, with $217 million in gross debt, net debt of $186 million – about 2.3x EBITDA, moderate leverage for firms in CECO’s industry – and ample capacity under an expanded $400 million credit facility. That flexibility, combined with disciplined capital allocation and a $5.8 billion sales pipeline, positions CECO to sustain growth, improve margins, and continue its run of quarterly outperformance through 2026.
Source: CECO Environmental Q3 2025 Earnings Presentation
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Upward Draft
CECO’s peers span pure-play environmental service and emissions-control companies like Montrose Environmental Group and Babcock & Wilcox Enterprises, alongside niche fluid-handling and energy-recovery specialists such as Energy Recovery, and established process-equipment competitors like Kadant.
Among these peers, CECO has posted the strongest share gains over the past 12 months, climbing 90%, although year-to-date it comes second after Babcock & Wilcox, logging in “only” about 59% (for reference, the Nasdaq Composite is up 22% so far in 2025). Despite this outperformance, analysts see a potential upside of over 25%, citing its record-filled Q3 report and ambitious 2026 guidance, backed by a surging backlog and the company’s strong position in its industry. Needham raised its price target from $52 to $57 post-release, while Craig-Hallum reaffirmed its Street-high PT of $63. Overall, CECO has a “Strong Buy” consensus rating from Wall Street analysts.
Meanwhile, although the stock appears richly valued versus Industrial sector median metrics, the picture shifts when compared to direct and adjacent peers. CECO’s non-GAAP trailing and forward P/E ratios are well above the peer average, but that’s because its earnings growth – both realized and expected – is simply much faster. At the same time, the once-boring industrial has become a measured growth story, steadily improving profitability and narrowing the gap with the solid, established margin benchmark Kadant – even outperforming it on select metrics such as return on equity.
The company now sits at or slightly below the group average when it comes to trailing Price/Sales and EV/EBITDA multiples, as well as on both trailing and forward EV/Sales, while its forward EV/EBITDA is slightly above average. Importantly, CECO’s transformation has driven its forward non-GAAP PEG to about 0.8x – low both in absolute terms and versus peers – indicating underpriced acceleration in its earnings momentum.
Taken together, the setup suggests that CECO’s valuation premium is less elevated than it looks – a reflection of growth discipline and accelerating earnings power in a market still pricing it like an industrial cyclical. With operational leverage building, backlog at record levels, and earnings growth outpacing every peer in its class, CECO heads into 2026 not as a rerated story, but rather as one still catching up to its own fundamentals.
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To Sum It All Up
CECO Environmental presents a growth story built on reinvention, scale, and timing. Once a conventional equipment supplier, it has evolved into a diversified industrial-solutions platform spanning air, water, and energy transition markets. Execution has matched ambition – record revenue, expanding backlog, and rising profitability show that the transformation is taking hold. Yet valuation still lags the shift in quality, as if CECO were another cyclical rather than an emerging compounder. With digital integration extending its reach into data centers and advanced manufacturing, a massive pipeline supporting multi-year visibility, and balance-sheet flexibility to keep consolidating niche technologies, CECO is well-positioned to convert operational leverage into sustained earnings power – a company scaling quietly, but decisively.
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Smart Growth Portfolio
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Disclaimer
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