Why IES Holdings is on investors’ radar today

IES Holdings (IESC) has drawn attention after recent share price moves, with the stock closing at $474.43 and posting positive returns over the past week, month, past 3 months, year to date, and past year.

The recent 4.99% 1 day share price return adds to a run of positive momentum, with a 30 day share price return of 17.45% and 1 year total shareholder return of 50.01% suggesting sentiment has strengthened over both shorter and longer horizons.

If IES Holdings has caught your attention, this could be a good moment to widen your search and check out fast growing stocks with high insider ownership as well.

With IES Holdings posting solid recent returns, annual revenue of about US$3.37b and net income near US$303 million, the key question now is simple: is the stock already fully priced, or is the market underestimating its future growth potential?

Price-to-Earnings of 31.2x: Is it justified?

IES Holdings currently trades on a P/E of 31.2x, which the data suggests is at a discount to both peers and the wider US Construction industry.

The P/E ratio compares the company’s share price to its earnings per share, so you are effectively seeing how much the market is paying for each dollar of profit. For a business with growing earnings, a higher P/E can reflect expectations that profits will continue to expand.

For IES Holdings, earnings are described as high quality, with profit growth over the past year of 50% and a 5 year earnings growth rate of 43% per year. On top of that, return on equity sits at 35.1%, which is classified as high, and net profit margins are reported at 9%, above last year’s 7%. Taken together, those inputs help explain why the market is willing to ascribe a P/E above many companies, while the assessment still flags it as good value relative to peers.

The current 31.2x P/E is below the US Construction industry average of 36.6x, and also below the peer average of 35x, which points to a cheaper earnings multiple despite the stronger historical growth profile. It is even assessed as low against an estimated fair P/E of 34.3x, a level that the market could move toward if sentiment and fundamentals stay aligned.

Result: Price-to-Earnings of 31.2x (ABOUT RIGHT)

However, you also have to weigh risks, including the current share price sitting above the US$440 analyst target, along with the possibility of any reversal in the recent double digit return streak.

Another view: DCF sends a different signal

While the P/E of 31.2x suggests IES Holdings is reasonably priced against peers, our DCF model indicates something different. With the share price at US$474.43 versus an estimated future cash flow value of US$318.65, the stock screens as expensive on this method.

That gap implies less of a margin of safety if cash flows come in below expectations or sentiment cools. If both earnings based and cash flow based views are on your radar, which one feels more reliable to you for a business like this?

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 881 undervalued stocks based on their cash flows. 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 or prefer to test your own view against the data, you can shape a custom thesis in minutes with Do it your way.

A great starting point for your IES Holdings research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

Looking for more investment ideas?

If you stop with just one stock, you might miss other opportunities that fit your style, so keep your options open and keep comparing what the market offers.

• Spot potential value by checking out these 881 undervalued stocks based on cash flows and see which companies currently trade at prices that differ from their assessed cash flow strength.
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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.