Graham Corporation (NYSE: GHM) and AAON (NASDAQ:AAON) are both small-cap industrial products companies, but which is the superior business? We will compare the two companies based on the strength of their risk, valuation, analyst recommendations, dividends, earnings, institutional ownership and profitabiliy.
Profitability
This table compares Graham Corporation and AAON’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Graham Corporation | 6.51% | 5.31% | 4.00% |
| AAON | 13.32% | 24.33% | 19.21% |
Institutional & Insider Ownership
74.9% of Graham Corporation shares are held by institutional investors. Comparatively, 66.2% of AAON shares are held by institutional investors. 3.3% of Graham Corporation shares are held by insiders. Comparatively, 22.3% of AAON shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.
Valuation and Earnings
This table compares Graham Corporation and AAON’s gross revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | EBITDA | Earnings Per Share | Price/Earnings Ratio | |
| Graham Corporation | $91.77 million | 2.08 | $9.63 million | $0.60 | 32.50 |
| AAON | $384.63 million | 4.77 | $91.19 million | $0.95 | 36.74 |
AAON has higher revenue and earnings than Graham Corporation. Graham Corporation is trading at a lower price-to-earnings ratio than AAON, indicating that it is currently the more affordable of the two stocks.
Risk & Volatility
Graham Corporation has a beta of 1.05, suggesting that its share price is 5% more volatile than the S&P 500. Comparatively, AAON has a beta of 0.96, suggesting that its share price is 4% less volatile than the S&P 500.
Dividends
Graham Corporation pays an annual dividend of $0.36 per share and has a dividend yield of 1.8%. AAON pays an annual dividend of $0.26 per share and has a dividend yield of 0.7%. Graham Corporation pays out 60.0% of its earnings in the form of a dividend. AAON pays out 27.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Graham Corporation has increased its dividend for 4 consecutive years. Graham Corporation is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.
Analyst Ratings
This is a breakdown of recent recommendations for Graham Corporation and AAON, as provided by MarketBeat.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Graham Corporation | 0 | 0 | 1 | 0 | 3.00 |
| AAON | 0 | 0 | 1 | 0 | 3.00 |
Graham Corporation presently has a consensus target price of $30.00, indicating a potential upside of 53.85%. AAON has a consensus target price of $30.00, indicating a potential downside of 14.04%. Given Graham Corporation’s higher possible upside, equities analysts plainly believe Graham Corporation is more favorable than AAON.
Summary
AAON beats Graham Corporation on 10 of the 15 factors compared between the two stocks.
Graham Corporation Company Profile
Graham Corporation designs, manufactures and sells critical equipment for the energy, defense and chemical/petrochemical industries. The Company designs and manufactures custom-engineered ejectors, vacuum pumping systems, surface condensers and vacuum systems. It is a nuclear code accredited fabrication and specialty machining company. It supplies components used inside reactor vessels and outside containment vessels of nuclear power facilities. Its equipment is found in applications, such as metal refining, pulp and paper processing, water heating, refrigeration, desalination, food processing, pharmaceutical, heating, ventilating and air conditioning. For the defense industry, its equipment is used in nuclear propulsion power systems for the United States Navy. The Company’s products are used in a range of industrial process applications in energy markets, including petroleum refining, defense, chemical and petrochemical processing, power generation/alternative energy and other.
AAON Company Profile
AAON, Inc. is engaged in the engineering, manufacturing, marketing and sale of air conditioning and heating equipment consisting of standard, semi-custom and custom rooftop units, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps and coils. Its products serve the commercial and industrial new construction and replacement markets. Its rooftop and condensing unit markets consist of units installed on commercial or industrial structures of less than 10 stories in height. Its air handling units, self-contained units, geothermal/water-source heat pumps, chillers, packaged outdoor mechanical rooms and coils are applicable to all sizes of commercial and industrial buildings. The replacement market consists of products installed to replace existing units/components that are worn or damaged.
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