Matrix Service: Waiting For Profitability, Shares Retreat From Monster Rally (NASDAQ:MTRX)
The Industrials sector was strong during the back half of 2022. As the value-trade ebbed and flowed, Industrials was a consistently strong area. Recently, though, XLI has given back some gains as a risk-off trade, in favor of long-duration equities due to lower interest rates, as hurt the sector’s relative strength against the S&P 500.
Matrix Service has also pulled back lately, and I see an important resistance zone on the chart with this non-profitable clean energy infrastructure play. I’m a hold for now based on its lack of profits and dicey chart.
Back in September last year, I profiled the company as a short-term earnings-related play. Shares indeed fell in the sessions after its Q4 report, but this time I wanted to look a bit longer-term to assess the valuation and technicals amid this volatile market. Risks are more mixed today compared to six months ago.
Industrials Losing Relative Strength
According to CFRA Research, Matrix Service Company (NASDAQ:MTRX) provides engineering, fabrication, construction, and maintenance services to support critical energy infrastructure and industrial markets in the United States, Canada, South Korea, Australia, and internationally. It operates through three segments: Utility and Power Infrastructure; Process and Industrial Facilities; and Storage and Terminal Solutions.
The Tulsa-based $155 million market cap Construction & Engineering industry company within the Industrial sectors has negative trailing 12-month GAAP earnings and does not pay a dividend, according to The Wall Street Journal.
Back in February, the company reported a steep operating loss which was much worse than what analysts were expecting. Making the Q2 picture worse was a top-line miss, too. Though sales were higher by 20% on a YoY basis. Matrix is shifting its pipeline toward benefiting from the low carbon economy looking ahead and it has a backlog of services valued at $740 million as of the end of 2022, according to the company’s reports.
The management team sees the most opportunity in storage and terminal solutions as LNG export growth increases over time. Just recently, Matrix landed an order for an ethane storage tank along the Texas Gulf coast after a Mid-Atlantic project was won last October. These are positive operational trends.
Looking ahead, 2023 earnings are seen as continuing to be in the red, but 2024 per-share profits are expected to turn positive. The revenue trend is more impressive – sales troughed in 2021 at $673 million but are seen as rising from $831.3 million in 2023 to $924.3 million in its FY 2024. Still, the firm’s margins remain much poorer than its peer average, so profitability is still an issue despite the decent valuation.
Matrix: Earnings Forecast And Key Profitability Ratios
Consolidated Quarterly Income Snapshot
Seeking Alpha notes that Matrix trades at just 0.20 forward sales, a steep discount compared to the 1.59 sector median and cheap relative to its 5-year historical average multiple of 0.29. Moreover, the company sells for less than 0.2 times sales on a forward basis, a 44% discount to the 5-year average.
Overall, though, I am hesitant to make this a buy considering the lack of profitability.
Matrix: Cheap on EV/Sales and P/S, But A Non-Earner
Looking ahead, corporate event data provided by Wall Street Horizon show an unconfirmed Q3 2023 earnings date of Monday, May 8 BMO. The calendar is light on volatility catalysts aside from the reporting date.
Corporate Event Risk Calendar
The Technical Take
Shares have had a wild ride since I first looked at Matrix last September. Notice in the chart below that the stock had jumped to its early 2022 peak just shy of $10 – a near triple from its September 2022 low. In the last month, though, the stock has pulled back sharply, retracing more than 50% of the September through February advance.
MTRX is now slightly below its flat to slightly rising 200-day moving average and fractionally under the $5.83 to $6.13 range that was prior resistance in Q3 and Q4 last year. The technical situation would improve if shares climb back above $6.25 or thereabouts as the broader trend shows signs of a bearish to bullish reversal. Matrix broke its downtrend resistance line off the early 2021 peak above $16 last December, and the stock is now retesting that line.
Overall, I think there is upside potential, but a climb back above near-term resistance while holding the former downtrend line are key.
MTRX: Shares Retreat Following A Bullish Breakout
The Bottom Line
While there’s ample opportunity for growth in the clean energy infrastructure space, Matrix’s lack of earnings and questionable technicals are risks. I am a hold for now but look to revisit this name should the bottom line turn into the green over the coming quarters.