When the Government Becomes Your Co-investor
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What is the premise of the government acting as a co‑investor in U.S. companies?
The government as an investing partner? Whatly Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crow, and today I'm joined by longtime Fool Contributors, Matt Frankel and Lou Whiteman. We are going to do our best to talk about investing with the government, getting involved more in companies recently, without touching too many political rails here. We're trying to do this as much as an apolitical. We are investors, we are trying To invest. And there the reality is investor, uh, the government is getting more involved in companies. We're also going to hit the mailbag, but first we're going to start with some off calendar earnings, I guess you could say.
Sh uh Forgent Power Solutions. They're actually a frequent recommendation in several uh hidden gem services here at the Motley Fool. Shares are up about 10% after they report reported their fiscal fourth quarter and full 2026. results. The company exceeded both Wall Street and its own expectations actually and swung into profitability and frankly put up numbers that aren't really commensurate with what most people would say is an electrical equipment manufacturer, making things like switch gears and circuit breakers and stuff like that. I mean there were a lot of numbers that stood out to me and we can get into those, but guys, what stood out to you the most?
Well let's take it take it just the simple ones, the top and bottom line beat with a guidance boost. And that's what's been missing in a lot of earnings reports this season. You're right, we're kind of done the season, but the kind of theme for now was things are fine, but we don't know about the future. Fortune seeds really, really comp about the future. The guidance part stands out because, you know, for all these picks and shovel companies, capacity, how much you grow from here is a real Issue. Well, they can grow from here. They're forecasting 75% year-over-year growth in fiscal 27, which has started. That's just at the midpoint. Tyler, I also like to see that the EPS guidance was uh boosted because they did a secondary back in June.
Some of it was just selling existing shares, their private equity owners, but some of it was new shares they were adding to the denominator. So if they can earn more per share than expected. Expected at a time when they are growing the number of shares, that's a real good sign that the company is is is really, dare I say it, firing on all cylinders.
Yeah, I mean the beaten race was definitely the headline, but to me that isn't the biggest story. To me, it is the the one point five billion dollars in bookings Forgent added in the second quarter. That is up three hundred and seventy five percent year over year. I feel like with some of these AI trades, those numbers just get kind of so big that, you know, how do you put 'em in context? But it represents a book to bill ratio of three point three, meaning that Forgent's bookings are three point three times its revenue. It's reporting. The company's backlog is now over three billion dollars. That's up 53% sequentially. Uh the margin improvement was impressive. Most most switch gear and transformer companies that are comparable to Forgent report adjusted EBITDA margins in the upper teens.
Um Forgent reported a little over twenty-four percent, and they're spending money to add capacity, and it it it seems like it's for good reason.
Yeah, one of the things that uh stuck out to me is we have a company that was relatively unprofitable. It's been growing at uh rather impressive rates. And based on their forecast for the upcoming fiscal year, which will be basically from now until, you know, mid September next year, they're expecting like one point two five to one point four uh or one dollar and forty cents, excuse me, in earnings per share for fiscal twenty twenty seven, which uh you know just doing a quick back of the math in my head, it's somewhere around like 25, 26 times forward earnings. A company growing this fast, that seems relatively reasonable and it kind of gets almost to me is almost like a little bit of a huh, that's relatively cheap, but m if it's, you know, might be some sort of cyclical aspect to it.
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