2023-09-20 09:20:22 ET
Summary
- MTRX has announced strong Q4 FY23 and FY23 results, indicating a recovery in its financials.
- The company's revenue increased by 12.3% in FY23 compared to FY22, with high awards and a backlog rise of 85% year on year.
- MTRX's stock price has corrected more than 60% since 2020, presenting a potential opportunity for investors due to its improving financials and low valuation.
Matrix Service Company ( MTRX ) offers engineering and maintenance services to industrial markets worldwide. MTRX recently announced strong Q4 FY23 and FY23 results. After struggling for the last four financial years, we are seeing a recovery in the financials, which is a positive sign. Its stock price has corrected more than 60% since 2020, which I believe can be a great opportunity for investors because its financials are coming back on track, and its valuation seems low. Hence, I assign a buy rating on MTRX.
Financial Analysis
MTRX recently posted its Q4 FY23 and FY23 results . The revenue for Q4 FY23 was $205.8 million, up 10.1% from the third quarter and 2.5% from Q4 FY22. The 10.1% increase in revenue was due to the strong performance in its storage and terminals solutions and utility and power infrastructure segments. The revenue from the storage and terminals solutions and utility and power infrastructure segments grew by 23% and 11.7% in Q4 FY23 compared to Q3 FY23. In Q4 FY23, they got awards worth $464 million, which is the highest in the last five years. So, the high awards benefitted all the segments of the company. The gross profit margin for Q4 FY23 was 7.1%, which was 2.4% in Q3 FY23. The improvement was mainly due to better recovery of construction overhead costs.
I think the company performed well in this quarter. Not only the quarterly results but its annual results were quite impressive. Its revenue increased by 12.3% in FY23 compared to FY22, and the net loss also decreased to $52.3 million, which was $63.9 million in FY22. The numbers show that the company has performed both sequentially and year-on-year. The company's revenues mainly depend upon its ability to win projects or awards, and in FY23, its awards were worth $1.3 billion, the highest in the last four years. As a result, its backlog by the end of June was $1.1 billion, a rise of 85% year on year. In 2021, its backlog was below $500 million, and the volatility in the revenue growth was quite high. But in FY23, the results show signs of recovery, and the significant increase in the awards shows the management's ability to win projects in the highly competitive market after struggling financially for the last three financial years due to COVID headwinds. The positive revenue growth in FY23 was a positive sign.
Technical Analysis
MTRX is trading at $9.1. In the last two years, the stock has been down more than 42% and has been in a downtrend since 2014. However, the recent price action of MTRX is quite positive and is showing signs of trend reversal. The stock made a double bottom pattern in the month of May, and in August, the stock broke the neckline of the double bottom pattern. It shows that buyers are being active in the stock. So, looking at the positive price action, I think the stock has bottomed out and has solid upside potential. Now, talking about upside potential, if we measure from the second bottom to the neckline, it is around 70%. So, from the neckline, which is at $8.3, I see an upside of 70%. Hence, I am bullish on MTRX.
Should One Invest In MTRX?
The company's financials started to deteriorate in FY20, and the stock price began to fall since then. In FY19, the company reported solid results, and in that financial year, the company became profitable after being in a loss for two consecutive financial years, and the market thought that the company might see a turnaround. So, its stock price rallied around 55% in that financial year, and if we see the chart, the stock price recovered well in FY19 after being in a downtrend since 2014. But things didn't go as planned, and Covid disrupted the industry. Due to COVID-19, all the recovery that the stock had done in FY19 went in vain, and the stock again started to fall. The stock price has fallen about 60% since FY20, and the main reason I think behind the fall was its drastic revenue fall. Their revenues in FY19 were $1.4, which fell up to $673.4 million in FY21, mainly due to Covid. But in FY23, they saw a positive revenue growth. The revenue growth is still below the pre-COVID level, but there are other factors that show that the company is recovering quite strongly. The awards won by them in Q4 FY23 were the highest in the last five years, showing that the demand they are experiencing is approaching pre-COVID levels. The recovery in the company's revenues is an optimistic sign, and with a healthy backlog, I expect them to continue to perform. Over the last few years, the company's share price was affected due to volatility in its revenue growth. But, the company is looking good for FY24 because of the positive outlook, healthy backlog, and strong growth in the energy market. So, its share price might appreciate in the coming times due to expected stable growth in the company's revenues.
In addition, its valuation seems attractive. MTRX has a Price / Sales [FWD] ratio of 0.29x lower than the sector median of 1.35x and has a Price / Book ratio of 1.36x lower than the sector median of 2.52x. The ratios suggest that it is undervalued. If we compare its performance with its competitors like NWPX , SLND , and ORN , we can see that MTRX has performed better. MTRX has a revenue growth [YOY] of 12.33%, and its competitors NWPX, SLND, and ORN have a revenue growth [YOY] of 7.29%, -4.04%, and 7.29%. So, based on its performance, I think MTRX deserves to trade at a higher valuation. So, the valuation also looks reasonable, and with the positive outlook for FY24, I think MTRX can be a solid bet for FY24. Hence, looking at the solid results, positive outlook, low valuation, and strong price action. I assign a buy rating on MTRX.
Risk
The majority of its revenue comes from contracts that are given out on a project-by-project basis. Due to drawn-out and complicated bidding and selection procedures, changes in the actual or anticipated market state, customers' access to financing, governmental rules, permitting requirements, and environmental concerns, it is typically difficult to predict whether and when they will be given a new contract. Because they receive their revenue via contract wins, their operating results and cash flows can change significantly over time. As the company balances its existing capacity with expectations of future contract awards, the scheduling uncertainty associated with contract awards could diminish its short-term profitability. They may incur costs to keep a staff idle if an anticipated contract award is delayed or not granted, which could materially harm their operating results. Alternatively, they might determine that cutting their personnel and paying higher severance and termination benefit costs will best serve their long-term interests. Either scenario might have a materially negative impact on our results of operations in the immediate aftermath. If they cannot properly staff projects granted after a labor decrease, it could potentially influence their operational outcomes.
Bottom Line
In FY23, the company’s financial recovery was impressive, and the technical chart indicates reversal signs. MTRX can be a great buying opportunity because its valuation seems low, and the strong backlog sets them for FY24. So, considering the positive outlook, I assign a buy rating on MTRX.
For further details see:
Matrix Service Company: It Has Started To Recover