Stock Analysis

With EPS Growth And More, IES Holdings (NASDAQ:IESC) Is Interesting

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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.

So if you're like me, you might be more interested in profitable, growing companies, like IES Holdings (NASDAQ:IESC). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for IES Holdings

IES Holdings's Improving Profits

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. Thus, it makes sense to focus on more recent growth rates, instead. Like a wedge-tailed eagle on the wind, IES Holdings's EPS soared from US$1.64 to US$2.14, in just one year. That's a commendable gain of 31%.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. IES Holdings maintained stable EBIT margins over the last year, all while growing revenue 11% to US$1.2b. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NasdaqGM:IESC Earnings and Revenue History March 11th 2021

While profitability drives the upside, prudent investors always check the balance sheet, too.

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$30m worth of its stock. That's a lot of money, and no small incentive to work hard. Even though that's only about 2.7% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

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$2.2m.

The CEO of IES Holdings only received US$738k in total compensation for the year ending . 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 a culture of integrity, in a broader sense.

Does IES Holdings Deserve A Spot On Your Watchlist?

For growth investors like me, IES Holdings's raw rate of earnings growth is a beacon in the night. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. This may only be a fast rundown, but the takeaway for me is that IES Holdings is worth keeping an eye on. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with IES Holdings (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

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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Risks

  • Profit margins (1.4%) are lower than last year (4.3%)

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