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A pivot by industrial manufacturer Graham (NYSE: GHM) toward defense appears to be producing results, and investors are excited about the opportunity from here.

Shares of Graham traded up 9% as of noon ET on Friday after the company posted solid year-over-year growth.

Shifting into growth mode

Graham designs and manufactures fluid, power, heat-transfer, and vacuum technologies for a range of industries. The company has nearly doubled revenue since 2021, from $97.5 million to $185.5 million, with defense sales going from about one-quarter of the total four years ago to 54% today.

The company earned $0.15 per share in its fiscal fourth quarter (ending March 31) on revenue of $49 million, up from a break-even quarter on $43 million in sales a year ago. The company also paid off all of its debt during its now-completed fiscal year and ended the period with a backlog of nearly $400 million in future business.

"Steady execution on our plan set two years ago has brought significant progress," CEO Daniel J. Thoren said. "Over the past year, we achieved record revenue and orders, and enhanced profitability and cash flow management."

The company also received a $13.5 million investment from an unnamed major defense contractor to fund its production capabilities, a positive sign for future demand.

Is Graham stock a buy?

Graham generated an operating margin of 3.1% in the most recent quarter. The nature of this business suggests it will never be a high-margin standout, but the company is set up well to grow revenue substantially in the years to come.

Much of its defense business is tied to U.S. Navy nuclear sub and carrier contracts, which are top government priorities. The backlog provides some clarity about future quarters, and suggests Graham is on track to grow revenue by upward of 10% annually over the next few years.

Trading at 1.7 times sales, Graham is not inexpensive today. But if the company can execute on its plan and grow sales in the years to come, there is ample room for this stock to appreciate from here.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.