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What Is The Future Prospect For Capital Goods And IES Holdings Inc (NASDAQ:IESC)?

IES Holdings Inc (NASDAQ:IESC), a USD$362.73M small-cap, is a engineering and construction (E&C) company operating in an industry, which is expected to benefit from higher gross domestic product, high consumer confidence, and upbeat private sector investments. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 19.11% in the upcoming year , and an optimistic near-term growth of 19.59% over the next couple of years. This rate is more than double the growth rate of the US stock market as a whole. Today, I’ll take you through the sector growth expectations, and also determine whether IES Holdings is a laggard or leader relative to its capital goods peers. View our latest analysis for IES Holdings

What’s the catalyst for IES Holdings’s sector growth?

NasdaqGM:IESC Past Future Earnings Jan 11th 18
NasdaqGM:IESC Past Future Earnings Jan 11th 18

The E&C industry in US faces growing competition from players in China, Korea and India. Firms in rapidly growing economies have spent the past decade focusing on their home markets, gradually building up cash positions and internal expertise. Now, as growth eases in their home markets, they are expanding outward and seeking to compete against established global players. In the previous year, the industry saw growth of 9.55%, though still underperforming the wider US stock market. IES Holdings lags the pack with its negative growth rate of -88.91% over the past year, which indicates the company will be growing at a slower pace than its E&C peers. As the company trails the rest of the industry in terms of growth, IES Holdings may also be a cheaper stock relative to its peers.

Is IES Holdings and the sector relatively cheap?

NasdaqGM:IESC PE PEG Gauge Jan 11th 18
NasdaqGM:IESC PE PEG Gauge Jan 11th 18

E&C companies are typically trading at a PE of 20x, relatively similar to the rest of the US stock market PE of 20x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 9.59% on equities compared to the market’s 10.44%. On the stock-level, IES Holdings is trading at a higher PE ratio of 27x, making it more expensive than the average E&C stock. In terms of returns, IES Holdings generated 5.84% in the past year, which is 4% below the E&C sector.

What this means for you:

Are you a shareholder? IES Holdings has been an E&C industry laggard in the past year. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis. This may indicate it is the right time to sell out of the stock, if your initial investment thesis is around the growth prospects of IES Holdings, since there are other E&C companies that have delivered higher growth, and are possibly trading at a cheaper price as well.

Are you a potential investor? If IES Holdings has been on your watchlist for a while, now may be the best time to enter into the stock. Its lagging growth rate compared to its E&C peers in the near term doesn’t build up its investment thesis, and in addition to this, it is also trading at a PE above these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the capital goods sector.

For a deeper dive into IES Holdings’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other capital goods stocks instead? Use our free playform to see my list of over 100 other E&C companies trading on the market.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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