On September 2, Argan (NYSE:AGX) reported the best second quarter in company history, and the numbers explain why the stock has become a favorite way to bet on America’s power crunch. Revenue jumped 61.5% to $384.0 million for the quarter ended July 31, while net income hit a record $53.3 million, or $3.76 per diluted share. The engine behind it all is Argan’s Power segment, which is now building the gas-fired plants utilities need to keep the lights on.
Power Demand Outruns Supply
Power segment revenue climbed 53% year over year to $301 million, or 78% of total sales, with gross margin expanding to 22.4% as project mix and execution improved. Argan’s backlog includes four gas-fired power plants in the US totaling more than 4.1 gigawatts, and management said it expects to add a handful of new projects over the next 7 to 15 months. With crews trained and in place, the company believes it can run 10 to 12 jobs simultaneously, a scale that matters when demand for reliable, around-the-clock power is being pulled by data centers, EV adoption and the return of domestic manufacturing.
Argan is funding this growth from a debt-free balance sheet holding $1.03 billion in cash and investments, with net liquidity rising to $440.4 million from $421.0 million at the start of the fiscal year. That cushion let the company return $51.7 million to shareholders in the first six months of the year through a $0.50 quarterly dividend, now at an annual run rate of $2 per share after three straight years of increases, plus a buyback program the board extended through January 31, 2030. The late-quarter purchase of ValCor Communications adds a New England presence and Fortune 500 technology, defense and aerospace clients to the Teledata segment, while a new fabrication facility in North Carolina, on track for completion later this year, is expected to generate $10 million a quarter once running, supporting a $125 million data center contract already in hand.
Cracks Beneath The Backlog
Not every line item moved in the right direction. Consolidated gross margin has slipped for three straight quarters, from 25% in the fourth quarter of fiscal 2026 to 21% in the first quarter of fiscal 2027 and 19.3% in the quarter just reported. The Industrial segment’s gross margin fell to 7.3%, well below what management expected, after Argan revised cost estimates on two projects.
Consolidated backlog also shrank to $2.5 billion as of July 31, from $2.9 billion at the start of the fiscal year, a $411 million decline that CEO David Watson said reflects project completions and the timing of new contract awards rather than lost demand. Argan is also leaning harder into a single fuel source, with natural gas now making up 80% of the backlog, even as management acknowledged what Watson called “regulatory back and forth” around data center development in markets like Texas.
Wall Street Hedges Its Bets
Hedge fund ownership of Argan slipped to 39 funds in the most recent quarter from 42 the quarter before, a modest pullback rather than a stampede. Short interest sits at 7.84% of the float, high enough to signal a real bear camp is betting against the natural-gas buildout story. That combination suggests that the market is still working out whether Argan’s backlog swings are noise or an early warning.
The Next Few Quarters Decide
Argan’s growth story is real: record revenue, record earnings and a gigawatt-scale pipeline point to a company riding the biggest power buildout in decades. But three straight quarters of margin compression and a shrinking backlog complicate the picture management would prefer to tell. For the bull case to hold, the North Carolina facility and the next batch of gas-plant awards need to convert into revenue without another Industrial-style cost miscalculation. For skeptics, the real test is whether backlog keeps sliding once the current wave of projects burns off.
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