The HVAC market is hot! Limbach Holdings (NASDAQ:LMB), one of the market leaders in this space, has seen its share price more than double in the past year (as seen in the chart below). Possessing ambitions to expand it reach, Limbach could present an attractive growth option for long-term investors.
Growing Client Base and Margins
Limbach Holdings is a building systems solutions firm specializing in the design, prefabrication, installation, management, and maintenance of heating, ventilation, and air conditioning (“HVAC”) systems. It services a diverse clientele, from a variety of sectors, running the gamut from data centers to cultural and entertainment venues.
The company operates in two segments: General Contractor Relationships (GCR) and Owner-Direct Relationships (ODR). It is strategically focused on growing its ODR segment, which currently accounts for more than 50% of total revenue. This shift has helped to expand total gross margins from 18.9% in 2022 to 23.1% in 2023.
Strategic acquisitions also form a core part of Limbach’s long-term growth plan. In 2023, the company successfully acquired ACME Industrial and Industrial Air. This resulted in new direct relationships with Fortune 500 caliber customers in the manufacturing vertical, while providing additional ODR customer relationships with consumer goods and textile manufacturing facilities.
Recent Financial Results & Outlook
For the fourth quarter of 2023, the company reported a slight decrease in revenue of 0.6% to $142.7 million, down from $143.5 million the previous year. This was due in part to the strategic decision to focus on smaller projects with higher profit margins. As a result, Limbach experienced a growth in gross profit of 14%, ramping up from $29.2 million to $33.3 million. Net income also increased to $5.2 million or an EPS of $0.44 per diluted share, up from $3.8 million–or $0.35 per diluted share–in 2022.
Looking at the year 2023 as a whole, revenue increased by 3.9% to $516.4 million, up from $496.8 million. Gross profits stood at $119.3 million, marking an impressive 27.3% increase from the previous year’s $93.7 million. Furthermore, net income saw a significant surge to $20.8 million or $1.76 per diluted share, up from $6.8 million or $0.64 per diluted share the previous year. Management expects revenue for 2024 to be within the range of $510 million to $530 million, further elevating the total gross profit margin to 24%-26%.
Is LMB Stock a Buy, Hold, or Sell?
Shares of the company had been trending up for some time until mid-March, when they experienced a post-earnings pullback, dropping roughly 17%. The stock now trades in the upper half of its 52-week price range of $15.83-$52.96, though it demonstrates negative price momentum, trading below the 20-day (44.14) and 50-day (43.89) moving averages. (However, keep an eye on this as the stock has begun to rebound the past few trading days, and this could quickly reverse.)
The stock appears to be relatively undervalued, with a P/S ratio of 0.9x compared to the Building Products & Equipment industry average of 1.9x. Its EV/EBITDA of 10.95x also sits well under the industry average of 14.77x.
The company is thinly followed by Wall Street. The stock is rated a Moderate Buy based on the most recent rating and price target assigned by one analyst in the past three months. The price target for LMB stock is $43.00, which represents a -0.12% change from current levels.
Final Thoughts on LMB
Limbach Holdings is well-positioned to grow its market share and profitability in a thriving HVAC market. Its strategic focus on acquisitions is expanding the customer base, while its focus on growing its ODR segment is paying dividends. The stock could therefore present an enticing value opportunity for long-term growth investors.
