Is Thermal Energy International stock a buy?

Beacon Securities analyst Russell Stanley maintained his $0.30 target price and “Buy” recommendation on Thermal Energy International (Thermal Energy International Stock Quote, Chart, News, Analysts, Financials TSXV:TMG) in an Oct. 28 report, implying a potential return to target of 131%.

He made modest estimate revisions following what he viewed as another “favourable” quarter, with gross margin strength driving a second consecutive Adjusted EBITDA beat.

The Ottawa-based clean-technology company, which has offices in the U.K., U.S., Italy, and China, reported Q1 revenue and Adjusted EBITDA of $6.8-million and $0.4-million, respectively, compared with Stanley’s forecast of $6.8-million and negative $0.1-million.

Revenue was flat sequentially and down 19% year-over-year due to lower activity on turnkey heat-recovery projects. Gross margin exceeded expectations by 415 basis points and improved 494 bps year-over-year on a favourable mix, as turnkey projects typically deliver mid-30% margins versus mid-50% for custom equipment. Operating expenses also came in lower than expected, largely due to FX, supporting an Adjusted EBITDA margin beat of 659 bps.

Order momentum remained strong, with Q1 bookings of $11.9-million, more than four times higher year-over-year, driving a book-to-bill ratio of 1.7×. The backlog was $18.5-million at quarter-end and has since risen to $20.8-million, up 13% year-over-year.

Stanley highlighted stronger-than-expected cash generation as “deserving attention.” Operating cash flow pre-working capital was $0.4-million, while a $1.3-million increase in deferred revenue produced a $1.9-million working-capital benefit, leading to operating cash flow of $1.9-million and free cash flow of $1.9-million, or 28% of sales. Long-term debt has fallen from $3.9-million at the end of fiscal 2022 to $0.2-million, with the balance to be repaid this quarter, and the $2-million revolver remained undrawn. The company repurchased more than 1.5-million shares at an average cost of $0.14.

TMG trades at 3.4× Beacon’s 2026 adjusted EBITDA forecast, an 84% discount to Trane Technologies, which trades at 21.0×, Stanley said. He cited potential catalysts including contract wins, Q2 results in January, and M&A to expand geographic sales coverage and product capabilities.

Stanley said that Thermal Energy should generate $4.9-million in Adjusted EBITDA on $38.2-million of revenue in fiscal 2026, improving to $7.8-million on $47.7-million in 2027.

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