Argan's Power Play: Record Revenue, But the Market Asks 'What's Next?'

A 50% revenue surge and 21% gross margins highlight a record quarter, yet a -37% drawdown suggests investors need more than strong execution—they want the 'handful of new projects' to show up.

AGX · Earnings Call · 2026-06-04

Record Quarter, But the Tape Speaks

Argan delivered a record first quarter: revenue up 50% year-over-year to $291 million, gross margin of 21%, and net income of $46 million. The company also reached substantial completion ahead of schedule on the final Midwest solar and battery project and final completion on the 950-MW Trumbull Energy Center. Yet the stock has fallen 34% over the past seven weeks from its June 30 peak, a -37% drawdown. The market is clearly looking past the strong print and asking whether the "handful of new projects" management has promised will actually land.

Argan's total revenue climbed 50% year-over-year in Q1 FY2027, its strongest quarter ever.

Capacity and the Data Center Engine

The core thesis is unchanged: the electrification of the economy and the proliferation of AI data centers are driving urgent power demand for new infrastructure. Argan is one of a handful of EPC firms capable of building large combined-cycle gas fired plants, and its backlog now sits at $2.8 billion, with 79% natural-gas projects. On the call, CEO David Watson reiterated the company's capacity constraint and its expectations:

The electrification of the economy, including the onshoring of domestic manufacturing, the use of EVs and the proliferation of data centers is creating urgent demand for additional energy infrastructure to support a power grid that is under tremendous pressure.
David Watson · 2026-06-04

In a sign that data centers are no longer just a demand driver but also a direct customer, Argan announced it is building a new fabrication facility in North Carolina to produce thermal expansion and energy storage tanks for data center projects. This is a notable shift for a company that has historically prided itself on being a "light CapEx" business—the $10–13 million investment is among its few meaningful PP&E expenditures. The move suggests management sees a multiyear runway in this niche.

Margins and the Market's Worry

Gross margins came in at 21%, above the high-teens to low-20s range the company has flagged. Management attributes the strength to execution and early completion milestones. The company also generated strong free cash flow, with a 37% FCF margin. Gross margin expanded to 21% in Q1, up 2.0 percentage points yoy, driven by execution and project mix. Yet the market's reaction—a sharp drawdown—likely reflects concerns about when the next big awards will be announced. The timeline for the "handful of projects" has slipped slightly, from 8–20 months to 10–18 months, as CEO Watson noted on the call:

“we currently have 8 power jobs underway right now, Chris, 6 thermal and 2 renewables, and we expect to add more over the next 10 to 18 months.” — David Watson · 2026-06-04

This is consistent with prior commentary—in March, Watson said he expected to add a handful of jobs over the next 8–20 months, and in December he expressed confidence that the $2.9 billion backlog would convert to revenues over the next three-plus years.

“we expect to add a handful of jobs over the next 8 to 20 months” — David Watson, Chief Executive Officer · 2026-03-26“We remain extremely confident. As you know, our current backlog of $2.9 billion is... it will be translated into revenues over the next 3-plus years.” — David Watson, Chief Executive Officer · 2026-03-26

The company has a strong balance sheet ($974 million cash/investments, no debt) and a disciplined approach to project selection, but the lumpy nature of large-scale EPC awards means revenue and backlog can fluctuate. The market's skepticism might also reflect valuation. At 10.7x trailing revenue, the stock trades at a significant premium to peers, and the recent capital expenditure announcement, though small, adds to the uncertainty.