Why this earnings report matters for IES Holdings (IESC)

IES Holdings (IESC) just posted first quarter results that put fresh numbers around the company’s current momentum, with higher sales, higher net income and higher earnings per share compared with the same period a year ago.

The strong first quarter update comes on top of an intense share price run, with an 18.82% 7-day share price return, 28.40% 90-day share price return and very large multi-year total shareholder returns. This suggests that momentum has been building for some time.

If this kind of earnings-driven move has your attention, it could be a moment to widen your watchlist and look through our 24 power grid technology and infrastructure stocks as another way to find infrastructure-linked opportunities.

With IES Holdings now trading around US$499.78 after very strong recent returns and earnings that put higher sales and profits on the table, the key question is simple: are you looking at an opportunity, or is the market already pricing in future growth?

Preferred P/E of 29.4x: Is it justified?

Based on the latest data, IES Holdings trades on a P/E of 29.4x, which sits below peers, the wider US Construction industry and an estimated fair P/E level.

The P/E multiple links the current share price to earnings. At 29.4x you are effectively paying just under thirty times the company’s recent profits. For a business with multiple segments across communications, residential, infrastructure solutions and commercial projects, that earnings-based yardstick gives a simple way to compare IES Holdings with other construction and capital goods names.

According to the checks provided, IES Holdings is described as good value on this P/E relative to peers at 33.5x, the US Construction industry at 38.8x and an estimated fair P/E of 37.4x that the market could move towards. This sits alongside strong reported earnings growth over the past year and over the past five years, which suggests the current multiple is not out of line with how the business has been growing its profits.

Compared with the industry average P/E of 38.8x, the company’s 29.4x level is materially lower. It is also below the 33.5x peer average, which indicates a clear discount on both sets of comparators.

Result: Price-to-Earnings of 29.4x (UNDERVALUED)

However, you also have to weigh risks such as the recent very strong share price run and a share price above the current US$458 analyst target.

Another view of value: SWS DCF model points the other way

While the 29.4x P/E suggests IES Holdings looks inexpensive next to peers and the wider US Construction group, our DCF model paints a different picture. In that view, the current US$499.78 share price sits well above an estimated future cash flow value of US$240.83, implying the shares look expensive on a cash flow basis.

That kind of gap can mean two very different things in practice: either the market is paying up for qualities that do not show in the cash flow assumptions, or cash flow expectations are running ahead of what the business might reasonably deliver. Which side of that line do you think IES Holdings sits on right now?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out IES Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own IES Holdings Narrative

If you see the numbers differently and want to test your own view against the data, you can build a custom thesis in minutes: Do it your way.

A great starting point for your IES Holdings research is our analysis highlighting 4 key rewards and 2 important warning signs that could impact your investment decision.

Looking for more investment ideas?

If you are serious about finding your next move, do not stop at one company. Use the screener to spot opportunities others might overlook right now.

• Target reliable cash generators by checking companies with consistent payouts through our 14 dividend fortresses, and see which income ideas deserve a closer look.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.