Here's What You May Have Missed About Encore Wire (WIRE)

Encore Wire logged a 3.4% change Friday, and is now trading at a price of $188.52 per share.

Encore Wire returned gains of 35.0% last year, with its stock price reaching a high of $206.74 and a low of $132.32. Over the same period, the stock outperformed the S&P 500 index by 19.0%. More recently, the company's 50-day average price was $175.23. Encore Wire Corporation engages in manufacture and sale of electrical building wires and cables in the United States. Based in McKinney, TX, the mid-cap Industrials company has 1,672 full time employees. Encore Wire has offered a 0.0% dividend yield over the last 12 months.

The Business Has Weak Operating Margins:

2018 2019 2020 2021 2022 2023
Revenue (MM) $1,289 $1,275 $1,277 $2,593 $3,018 $2,753
Gross Margins 15% 13% 15% 33% 37% 33%
Operating Margins 8.0% 6.0% 8.0% 27.0% 31.0% 27.0%
Net Margins 6.0% 5.0% 6.0% 21.0% 24.0% 21.0%
Net Income (MM) $78 $58 $76 $541 $718 $570
Net Interest Expense (MM) $2 $4 $1 $0 $10 $26
Depreciation & Amort. (MM) $17 $18 $19 $23 $26 $29
Earnings Per Share $3.74 $2.77 $3.68 $26.22 $36.91 $30.76
Diluted Shares (MM) 21 21 21 21 19 15
Free Cash Flow (MM) $55 $54 -$29 $300 $541 $569
Capital Expenditures (MM) $26 $52 $86 $118 $148 $148
Net Current Assets (MM) $422 $446 $426 $838 $1,197 $1,167
Long Term Debt (MM) $0 $0 $0 $0 $0 $0
Net Debt / EBITDA -1.51 -2.47 -1.55 -0.61 -0.77 -0.87

Encore Wire has growing revenues and increasing reinvestment in the business and exceptional EPS growth. Additionally, the company's financial statements display a pattern of improving cash flows and low leverage. However, the firm suffers from slimmer gross margins than its peers and weak operating margins with a positive growth rate.

The Market May Be Undervaluing Encore Wire's Assets and Equity:

Encore Wire has a trailing twelve month P/E ratio of 6.8, compared to an average of 20.49 for the Industrials sector. Based on its EPS guidance of $18.23, the company has a forward P/E ratio of 9.6. The company doesn't provide forward earnings guidance, and the compound average growth rate of its last 6 years of reported EPS is 42.1%. On this basis, Encore Wire's PEG ratio is 0.16. Using instead the 11.1% weighted average of Encore Wire's earnings CAGR and the broader market's anticipated 5-year EPS growth rate, the company's PEG ratio is 0.61, which implies that its shares may be underpriced. Additionally, the market is possibly undervaluing Encore Wire in terms of its equity because its P/B ratio is 1.72 whereas the sector average is 3.78. The company's shares are currently trading -34.5% below their Graham number.

Encore Wire Has an Analyst Consensus of Strong Upside Potential:

The 3 analysts following Encore Wire have set target prices ranging from $235.0 to $241.0 per share, for an average of $238.67 with a buy rating. As of April 2023, the company is trading -26.6% away from its average target price, indicating that there is an analyst consensus of strong upside potential.

Encore Wire has an unusually large proportion of its shares sold short because 40.0% of the company's shares are sold short. Institutions own 102.5% of the company's shares, and the insider ownership rate stands at 5.02%, suggesting a decent amount of insider shareholders. The largest shareholder is Blackrock Inc., whose 17% stake in the company is worth $510,336,659.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.