Whats keeping the stock down?TTM P/E = 6.77
Forward P/E = 5.86
The Metal Fabrication industry has a total of 20 stocks, with a combined market cap of $38.12 billion, total revenue of $23.69 billion and a weighted average PE ratio of 26.23.
As per:
https://stockanalysis.com/quote/tsx/DRX/
https://stockanalysis.com/stocks/industry/metal-fabrication/
Of course the markets are forward looking, and it would seem that investors are concerned about the future growth of DRX. I believe this to be attributed to the backlog going down recently, and also the lack of large ($200M+) contract announcements so far this year. DRX needs to continue landing contracts in order to grow, this is obvious.
However, I don't believe its time to worry yet, and feel DRX is still very undervalued all things considered. Of course the backlog is going to fluctuate throughout the year as they announce quarterly results and new contracts. DRX has a great track record of consistently landing new projects and growing their backlog, and I don't see why that trend would change now. Even though we haven't had a large ($200M+) contract announcement since last year December, I am confident we will see some in the near future. The CEO specifically discussed on the most recent conference call large projects in the green energy sector that will be finalized and announced after the election. Aside from that, anybody thats researched the company knows DRX is #1 in North America for engineering, fabricating and installing complex steel structures, and this is something that will be in high demand for a variety of different types of projects. As DRX grows its reputation through its excellent work, that will lead to more recognition and more contracts.
The backlog still remains very strong at over $400M, and that work will take them well into 2026. In the meantime, I expect we will have record quarterly/annual results given their recent investments in automation within their facilities. Net income will likely be around $60M (~$2 EPS) for the year, which will be a huge improvement from last year, and will be their 5th straight year of significant net income growth.
And needless to say, balance sheet, cash generation, margin improvement, insider ownership, etc are all fantastic, the only concern IMO for investors right now is future growth.
If we don't see any meaningful contract announcements over the next 6 months, I too will begin to worry, but for now that is just speculation. I look at DRX's track record and reputation along with trends in the industry which give me confidence in DRX's future.
"The global structural steel market is expected to grow at a CAGR of over 6% from 2022-2027 and is expected to reach $298.12 billion by 2027 from $205.36 billion in 2021."
https://www.arizton.com/market-reports/structural-steel-market
It should be noted as well, quite a few companies in DRX's industry which have stagnant growth or minimal expected earnings growth are trading at significantly higher mulitples.
https://stockanalysis.com/stocks/industry/metal-fabrication/
Personally, I feel DRX should at least have a forward P/E of 10 (which many would still consider cheap).