The problem with a 15% EBITDA margin business Now you are seeing what I warned you about. You just need to read the annual information form to understand the risks that seem to always materialize.
And herein lies the issue with a 15% margin business that relies on expensive labour and specialized parts to sell its value add service. During periods of inflation the margin goes away very quickly and there isn't much room for error. You saw this in spades the last couple of quarters.
ITS is a highly volatile earnings business. Less volatile than patent licensing, but still very volatile. It had no business trading at tech multiples and you are seeing that reflected with multiples compressing. And it is very challenging to raise prices when you agreed to extreme terms during government procurement processes.
Take management's forecast with a grain of salt. I don't see any manufacturer saying that labour and supply issues are going away in 3-6 months. Most are preparing for 2+ years of challenges.
And just think how deep Cannacord and analysts will be cutting when these absurd forecasts that ultimately rest on the Ukraine war ending, oil back at $60, boomers stop retiring no COVID flare up occurring in the fall and winter, and no accident in Taiwan occurs. Just imagine how bad the chip shortages and labour shortages could get if this magical fancy land doesn't materialize?
This is one of the most exposed type of industries to such a volatile and unstable macro environment.
Save yourself. Save your money.