Growth stocks trading at discounted valuations can be huge opportunities for investors. And there’s one in particular that’s catching my eye. The stock’s gone nowhere for the last five years, but the underlying business has done well. So I think it’s time to take a closer look.
Filtration
The company in question is Porvair (LSE:PRV). The firm manufactures filtration equipment for the aerospace and laboratory equipment industries.
There are several reasons I like this business, including:
- Strong repeat business.
- High barriers to entry.
- Resilient revenue streams.
- Impressive cash conversion.
Let’s take a closer look at each of these.
In the aerospace industry, Porvair’s filters have to be replaced after a certain time. This isn’t optional – it’s a legal requirement. With lab equipment, a lot of the company’s products are designed to be used once. That leads to a steady stream of repeat sales.
Its industries are have high regulatory standards. Whether it’s aircraft, drug development or water purity, competing isn’t straightforward. That makes it difficult (or impossible) for customers to switch to alternative providers. And that generates good pricing power for Porvair.
In terms of cyclicality, it’s important that the firm’s products are typically maintenance expenses. That makes demand fairly stable, even when companies aren’t expanding.
Source: Fiscal.ai
The firm also has excellent cash conversion metrics. Over the last 10 years, it’s consistently turned over 75% of its net income into free cash.
Dead money?
This all sounds positive, but it raises an obvious question. If the business is so good, why has it essentially gone nowhere since 2021?
The reason’s twofold. One’s growth – Covid-19 created a surge in demand for lab equipment that hasn’t been maintained since. As a result, Porvair’s had to contend with higher inventory levels and weaker demand. And this has been a challenge for the business.
The second’s valuation. Five years ago, the stock was trading at a price-to-earnings (P/E) ratio of 27, which is pretty high. As Warren Buffett points out, it’s possible to pay too much even for an outstanding business. And I think this might have been the case in 2021.
Now however, things are different on both fronts. Demand for lab filters started to recover in 2025 after a long period of high inventory levels.
Source: Fiscal.ai
On top of this, the stock’s now trading at a P/E multiple below 18. So I think the business has had enough time to catch up with the share price.
Risks and opportunities
Porvair shares are down 15% since the start of the year. And a big reason for this is the ongoing conflict in the Middle East. The firm’s relatively well-protected from cyclical ups and downs, but it isn’t immune to a global recession and that’s a risk right now.
From a long-term perspective though, there’s a lot to like about the business. And the current share price looks attractive to me. Opportunities like this don’t come around often, so I think investors should give this one serious consideration right now.
