Stock Analysis

Here's Why I Think IES Holdings (NASDAQ:IESC) Is An Interesting Stock

  •  Updated
NasdaqGM:IESC
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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In contrast to all that, I prefer to spend time on companies like IES Holdings (NASDAQ:IESC), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for IES Holdings

IES Holdings's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. I, for one, am blown away by the fact that IES Holdings has grown EPS by 49% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note IES Holdings's EBIT margins were flat over the last year, revenue grew by a solid 11% to US$1.2b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGM:IESC Earnings and Revenue History December 8th 2020

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check IES Holdings's balance sheet strength, before getting too excited.

Are IES Holdings Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own IES Holdings shares worth a considerable sum. To be specific, they have US$29m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 3.4% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations between US$400m and US$1.6b, like IES Holdings, the median CEO pay is around US$2.6m.

The IES Holdings CEO received total compensation of just US$105k in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Does IES Holdings Deserve A Spot On Your Watchlist?

IES Holdings's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. IES Holdings certainly ticks a few of my boxes, so I think it's probably well worth further consideration. We don't want to rain on the parade too much, but we did also find 3 warning signs for IES Holdings (1 shouldn't be ignored!) that you need to be mindful of.

Although IES Holdings certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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What are the risks and opportunities for IES Holdings?

IES Holdings, Inc. designs and installs integrated electrical and technology systems, and provides infrastructure products and services in the United States.

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Rewards

  • Price-To-Earnings ratio (21.7x) is below the Construction industry average (21.9x)

Risks

  • Profit margins (1.7%) are lower than last year (4%)

  • Large one-off items impacting financial results

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