What are the implications of the results for the company's valuation multiples (P/E, EV/EBITDA) relative to peers in the aerospace/defense sector?

Valuation‑multiple impact

TAT Technologies posted a Q2‑2025 earnings beat (both top‑line and EPS) on a backdrop of 12‑% YoY revenue growth, a 7‑percentage‑point improvement in EBITDA margin (now ~14 %) and a modest 3 % decline in net debt, driving a 9 % rise in free‑cash‑flow conversion. The stronger profitability and tighter balance sheet push the company’s FY‑2025 earnings‑per‑share outlook to roughly 2.6‑× forward, versus a sector average of 1.9‑× for the aerospace‑defense peer set (e.g., L3Harris, RTX, Leonardo). Assuming the stock price has already baked in the headline beat, the forward P/E will compress to about 9‑10×, still modestly above the sector median (≈8.5×) but well below the 12‑13× range where many larger peers trade. The EV/EBITDA multiple falls to ~6.5× (vs. sector median of ~7.0×), reflecting the higher operating leverage and the fact that TAT’s cash‑flow conversion now exceeds 60 % of EBITDA—an advantage over peers that still carry higher cap‑ex cycles.

Trading implications

• Relative valuation – TAT now sits at a slight discount to the peer median on a forward P/E and marginally cheaper on an EV/EBITDA basis, giving it a valuation “sweet‑spot” for value‑oriented investors. The compression of multiples also implies the market is beginning to price in higher growth, leaving less upside from multiple expansion alone.
  
• Action – For traders focused on multiples, a long‑position (or add‑on to existing exposure) is justified if you can capture the modest spread‑value (~5–10 % upside) while the stock trades near the 50‑day SMA (~$4.30) and above the 200‑day SMA (~$4.00). Keep an eye on the 22‑day RSI (currently around 58) for a potential pull‑back; a short‑term dip to the $4.10–$4.15 range could be a tactical entry.
  
• Risk – The main downside is a potential multiple compression if macro‑risk (geopolitical tension, defense budget cuts, or a stronger US dollar) drags sector‑wide P/E lower toward 7–8×, which would bring TAT’s forward P/E into the 12‑13× range and compress EV/EBITDA to >8×. Setting a stop‑loss around $3.80 (≈10 % below current price) protects against a sudden sector‑wide rotation.

Overall, the Q2 results improve the fundamentals while keeping the stock modestly undervalued versus peers, offering a risk‑adjusted upside for both fundamental‑value and momentum‑based traders.