Stock Analysis

Here's Why We Think IES Holdings (NASDAQ:IESC) Is Well Worth Watching

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NasdaqGM:IESC
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

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. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for IES Holdings

How Fast Is IES Holdings Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. 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 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 29% to US$1.5b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGM:IESC Earnings and Revenue History January 24th 2022

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?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that IES Holdings insiders have a significant amount of capital invested in the stock. Indeed, they hold US$33m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 3.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Is IES Holdings Worth Keeping An Eye On?

IES Holdings's earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it's worth considering IES Holdings for a spot on your watchlist. Before you take the next step you should know about the 1 warning sign for IES Holdings that we have uncovered.

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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