What that means is that there's a mismatch between expenses and revenue, and Wall Street hates that. Investors just despise "lumpiness." They want a company to get immediate returns from every dollar they spend, and when that doesn't happen, they sell the stocks. So right now the market is just giving people who can look beyond the next six months a great gift, an opportunity to buy these stocks before the money starts rolling in.
One of these construction firms called its backlog "massive" in its last conference call, and noted that the backlog would be even bigger than they're publicly listing if it were not for the fact that they don't want to scare cities with an overwhelming number of permit requests.
Mastec -- which I first wrote about last June, then in July, August and November, reported a $12 million loss in the first quarter. Although it was negative, it was a lot better than most people expected, and way better than its $46 million loss last year in the first quarter. Revenue rose to $218 million from $195 million.
What was compelling was the company's statement that it expects to finally make a turn to profitability in this quarter, and that despite its accounting problems last year, its new management had persuaded banks to increase its credit line to $150 million.
Shares have moved up about 10% since then, but investors really don't seem to understand how much opportunity is ahead for Mastec and the other major companies in this space. And not only do they not believe the turn is coming, they doubt the company after the big accounting probe last year.
But skepticism is what breeds value. Dycom (DY:NYSE - commentary - research), the largest company in the space, reports next week, and if the report shows the sort of expense-revenue mismatch that investors hate, then there may be one last chance to buy these stocks before the turn in business becomes more obvious and evident to everyone.
Thanks for posting. It all makes sense, but Dycom's earnings hurt MTZ today. I am a believer. Verizon, etc. are starting to spend, but I am just not familiar enough with who is winning these contracts right now.... Anyone in the industry care to comment?