Stock Analysis

Here's Why I Think IES Holdings (NASDAQ:IESC) Might Deserve Your Attention Today

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NasdaqGM:IESC
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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

So if you're like me, you might be more interested in profitable, growing companies, like IES Holdings (NASDAQ:IESC). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for IES Holdings

How Fast Is IES Holdings Growing Its Earnings Per Share?

In the last three years IES Holdings's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like a wedge-tailed eagle on the wind, IES Holdings's EPS soared from US$1.68 to US$2.45, in just one year. That's a commendable gain of 46%.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). IES Holdings maintained stable EBIT margins over the last year, all while growing revenue 11% to US$1.3b. That's a real positive.

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 June 11th 2021

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. So it is good to see that IES Holdings insiders have a significant amount of capital invested in the stock. To be specific, they have US$31m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 2.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like IES Holdings with market caps between US$400m and US$1.6b is about US$2.4m.

The IES Holdings CEO received total compensation of just US$738k in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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?

You can't deny that IES Holdings has grown its earnings per share at a very impressive rate. That's attractive. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. Each to their own, but I think all this makes IES Holdings look rather interesting indeed. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with IES Holdings , and understanding this should be part of your investment process.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

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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1Y Return

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