Why Carpenter Technology Stock Crashed After Earnings

Shares of Carpenter Technology Corporation (CRS) plummeted by 22.2% on Thursday, following the release of their first-quarter earnings report. The company had initially forecasted earnings of $3.04 per share, but exceeded expectations with a profit of $3.25 per share in Q1 2027. Analysts had predicted sales of $830.8 million, and Carpenter managed to surpass this target with $798.5 million in sales.

This marked a 28% increase in revenue compared to Q1 2026, setting a new sales record for the company. Furthermore, net profit per diluted share rose by 34%.

CEO Tony Thene pointed to strong growth in Carpenter's aerospace structural and distribution sub-markets, with bookings for future shipments increasing by 49% year-over-year. This growth in bookings outpaced revenue growth in Q1, indicating that revenue growth is expected to accelerate in future quarters. Thene also noted that prices are rising alongside sales, leading to improved profit margins.

Despite these positive indicators, Carpenter's stock experienced a significant drop in value. One potential reason for this reaction could be the company's lack of free cash flow. While Carpenter reported $162.5 million in GAAP net profit, it did not generate any free cash flow. Instead, the company spent nearly $25 million on increased capital spending, primarily to expand production at a brownfield factory.

Another factor that may have contributed to the stock's decline is valuation concerns. Carpenter's stock trades at a price-to-earnings ratio of 32 times its trailing earnings, compared to analysts' forecast of only 21.5% long-term annual earnings growth. This results in a price/earnings-to-growth (PEG) ratio of 1.5, suggesting that the stock may already be overvalued and due for a pullback. It appears that this pullback may have already begun.