2024-02-10 07:51:05 ET
Summary
- NV5 has executed an impressive growth story, with revenue growth of +29% and EBITDA growth of +37%. This has slowed in recent years, although continues to be impressive.
- NV5 is positioned to benefit handsomely from industry tailwinds, as infrastructure spending increases and technological complexities contribute to greater demand for support.
- NV5’s M&A has been dilutive to its ROE, implying shareholder capital is being inefficiently allocated relative to the earnings potential of the group and the wider market (ROIC <8%).
- NV5 performs well relative to its peers but is not a stand-out. On an organic basis, the company likely has slightly superior growth and reasonably good margins.
- NV5’s valuation does not scream upside following over 1k% gains, principally due to its inefficient capital allocation. This said, at a NTM FCF yield of ~8%, we see this as a good opportunity to scale in.
Investment thesis
Our current investment thesis is:
- NV5 (NVEE) is a fantastic company, illustrated by its impressive share price performance (+1k%). It is extremely well-rounded in its expertise, allowing the company to scale in the projects it is delivering and also expand the services it can offer its clients. We see numerous industry tailwinds that should support long-term growth, with its position allowing NV5 to gain market share and enjoy an outsized portion of this spending.
- The company’s capital allocation is a concern but we would like to see a period of operational improvement and execution before judging too harshly, as the business moves toward a mature level.
- At a FCF yield of ~8%, we believe the business is attractively valued. Its valuation does not scream undervalued in our view, and so investors would do well to progressively build a position if interested, but we see sufficient near-term resilience to initiate at a buy.
Company description
Read the full article on Seeking Alpha
For further details see:
NV5 Global: Benefiting Big From Infrastructure Spending