Conestoga Capital Advisors, LLC on AAON, Inc.
Thesis
AAON makes engineered HVAC equipment, including data-center cooling through its BASX business. Revenue is expanding strongly, while higher data-center demand and share gains support the longer-term opportunity. Gross margins lagged expectations in part because the Memphis facility is producing at suboptimal profitability. Conestoga believes margin recovery can follow as investments mature and manufacturing volumes scale.
“We remain constructive given robust data center demand, continued market share gains and significant opportunities to improve margins as recent investments mature”
Key risks
- Gross margin disappointment and suboptimal profitability at the Memphis facility.
- BASX orders have been lumpy.
- Industrial and AI-data-center beneficiaries experienced valuation pressure during the quarter.