What Is Going on With PWR Shares?

Shares of Quanta Services (PWR) jumped 0.8 % during today's morning session, bringing their 52 week performance to 32.0%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's mixed growth prospects and positive market sentiment.

Quanta Services, Inc. provides infrastructure solutions for the electric and gas utility, renewable energy, communications, and pipeline and energy industries worldwide. The large-cap Industrials company is based in Houston, United States and has 47,300 full time employees.

PWR Has a Higher P/E Ratio Than the Sector Average

Compared to the Industrials sector's average of 20.49, Quanta Services has a trailing twelve month price to earnings (P/E) ratio of 43.8 and an expected P/E ratio of 20.2. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $3.87 or forward earnings per share of $8.39.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Quanta Services's P/E ratio is higher than its sector average of 20.49, we can deduce that the market is overvaluing the company's earnings.

Quanta Services Is Fairly Valued in Terms of Expected Growth

Another factor pointing to Quanta Services's value is its PEG ratio of 1.37. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.

PWR Has an Average P/B Ratio

Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.

Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Quanta Services, the P/B value is 4.3 while the average for the Industrials sector is 3.78.

PWR's Weak Cash Flow Generation Is Troubling

The table below shows that Quanta Services is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Quanta Services's case, free cash flow is growing at an average rate of 0.0% with a coefficient of variability of 1693910254.9%. We can also see that cash flows from operations are evolving at a 0.0% rate, versus 0.0%:

Quanta Services's Margins Are Strong

If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Quanta Services's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.

Quanta Services's Gross Margins

Quanta Services's Operating Margins

Quanta Services's cost of revenue is growing at a rate of -0.0% in contrast to -22.1% for operating expenses. Sales revenues, on the other hand, have experienced a 0.0% growth rate. As a result, the average gross margins growth is -0.2 and the average operating margins growth rate is -0.3, with coefficients of variability of 7.8% and 0.0% respectively.

Quanta Services Benefits From Positive Market Signals

The market sentiment regarding Quanta Services is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $236.0 to $190.0. PWR is trading -23.6% away from its target price of $222.0. 2.9% of the company's shares are tied to short positions, and 92.2% of the shares are held by institutional investors.