Should You Investigate Infrastructure and Energy Alternatives, Inc. (NASDAQ:IEA) At US$15.63?

Infrastructure and Energy Alternatives, Inc. (NASDAQ:IEA), is not the largest company out there, but it received a lot of attention from a substantial price increase on the NASDAQCM over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today I will analyse the most recent data on Infrastructure and Energy Alternatives’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Infrastructure and Energy Alternatives

What is Infrastructure and Energy Alternatives worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Infrastructure and Energy Alternatives’s ratio of 30.85x is trading slightly above its industry peers’ ratio of 26.25x, which means if you buy Infrastructure and Energy Alternatives today, you’d be paying a relatively reasonable price for it. And if you believe Infrastructure and Energy Alternatives should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because Infrastructure and Energy Alternatives’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Infrastructure and Energy Alternatives look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Infrastructure and Energy Alternatives' earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? IEA’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at IEA? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on IEA, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for IEA, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Infrastructure and Energy Alternatives as a business, it's important to be aware of any risks it's facing. For instance, we've identified 5 warning signs for Infrastructure and Energy Alternatives (2 can't be ignored) you should be familiar with.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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