Newag: A 90% Earnings Grower Weighed Down by a Software Scandal

Newag S.A. sits at a fascinating intersection of strong industrial fundamentals and a heavy cloud of reputational risk. As a premier Polish manufacturer of railway locomotives, passenger vehicles, and trams, the company has spent the last year riding a wave of national rail modernization. Yet, despite putting up the kind of growth numbers that usually command a premium, the market has priced Newag like a distressed asset. Understanding whether this valuation is an opportunity or a warning requires looking past the raw financials and into the company's complex political and legal reality.

The financial reality

Let's start with the financial results, because the immediate figures are striking. Over the past year, Newag’s revenue jumped by roughly 55%, and earnings effectively doubled—growing by nearly 92%.

Return on equity measures how efficiently management generates profit from shareholder capital, and 40% is an exceptionally high mark. Profit margins currently sit at about 16%, which is unusually strong for a heavy industrial manufacturer where building trains typically involves tight margins and massive capital costs.

The valuation, however, tells a different story. The stock currently trades around 101 Polish zloty (PLN), giving it a trailing price-to-earnings (P/E) ratio of just under 11. More importantly, its forward P/E—what the market expects it to earn over the next year—is roughly 8. In plain terms, investors are paying just 8 zloty today for every 1 zloty of expected profit next year. For a company growing this fast, holding virtually zero net debt (with cash on hand of roughly 141 million PLN), a single-digit P/E ratio implies the market thinks the current profit streak is temporary, or that a hidden risk is about to surface.

The growth engine: state contracts and EU funds

Newag’s recent surge in revenue is not a mystery; it is directly tied to a massive, EU-subsidized overhaul of Poland’s railway infrastructure. The company has secured a steady stream of domestic contracts that guarantee years of production backlog.

In September 2026, the national operator PKP Intercity exercised an option worth nearly 1 billion PLN to purchase 32 additional multi-system Griffin locomotives, expanding an original 2024 mega-order. Regional governments in Małopolska and Podlaskie also placed fresh orders for Newag’s Impuls electric passenger trains earlier this year. Furthermore, the company is preparing to deliver 35 hybrid electro-diesel trains to PKP Intercity—a solution designed for the roughly one-third of the Polish rail network that remains un-electrified.

Looking ahead, the next massive catalyst is Poland’s planned high-speed rail network, tied to the Central Communication Port (CPK) project. In early 2026, Newag signed a memorandum of understanding with the German industrial giant Siemens to jointly bid on high-speed rail contracts. If this partnership secures a slice of the upcoming 300 km/h train procurements, it would shift Newag from a regional rolling-stock builder into a tier-one European rail player.

The overhang: the software scandal

If the order book is so strong, why is the stock so cheap? The answer lies outside the balance sheet, in a bizarre and ongoing corporate scandal.

Starting in late 2023 and continuing through 2026, Newag has been fighting intense public and legal battles over the software embedded in its trains. Independent repair shops found that Newag trains were mysteriously breaking down or locking up. When ethical hackers reverse-engineered the software, they discovered that Newag had allegedly used geofencing code to deliberately freeze the trains if they were parked at third-party repair facilities.

Instead of backing down, Newag has spent 2025 and 2026 suing the hackers and the repair shops, denying the sabotage claims and arguing that the hackers violated copyright laws. This has triggered parliamentary workgroups, criminal probes by Polish authorities, and immense reputational damage.

While state operators like PKP Intercity are still buying Newag trains—largely because they need domestic industrial capacity to meet EU funding deadlines—the legal and financial liabilities of this scandal remain completely unquantified. The market hates uncertainty, and a potential state penalty or forced software overhaul is a major unknown.

Cyclical peak fears

Beyond the legal cloud, there is a fundamental economic question. The broader global market is currently operating under tight financial conditions, with structurally higher yields and elevated energy costs. While Poland’s rail spending is insulated by public funding for now, investors worry that Newag is hitting a cyclical peak.

Once the current wave of EU subsidies dries up and the national fleet is fully modernized, the domestic order book will inevitably shrink. At that point, Newag would have to compete aggressively in export markets against established giants like Alstom and Siemens, where its margins would likely compress.

The valuation context

Evaluating Newag today requires weighing a highly profitable present against a hazy future. The fundamentals are undeniably excellent: high cash generation, a 2.9% dividend yield to reward shareholders while they wait, and a guaranteed pipeline of work through the end of the decade. At 8 times forward earnings, a significant amount of bad news is already priced into the stock.

The forward view hinges on two things. First, the outcome of the software legal battles. A clean resolution or a manageable fine would remove a massive weight from the stock. Second, the success of the Siemens partnership in securing high-speed rail contracts. If Newag can successfully pivot its engineering into the next generation of European rail, the current single-digit P/E will look like a steal. If the legal fallout worsens or export growth stalls, the cheap valuation might just be an accurate reflection of a company that has already seen its best days.