CASE STUDY: Perma-Pipe International Holdings (PPIH)

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November 3, 2024

Perma-Pipe International Holdings (PPIH) makes specialty pipes which have coatings and linings for various harsh-condition transportation of oil, chemicals, and water. End markets are oil & gas, chemical, and infrastructure.  PPIH also makes leak detection systems.

In the company’s most recent quarter, it reported EPS (earnings per share) of $0.40 versus $0.13 in the prior year.  Furthermore, PPIH has a backlog of $75.5 million, which does not include $46 million in additional rewards secured subsequent  to the end of the quarter.

The company is poised to continue increasing its EPS if they can continue increasing their revenues.  This is a real possibility because PPIH provides products and services to Middle East regions that are investing in long-term infrastructure projects.

The market cap is $101.9 million, while enterprise value is $128.0 million.

Here are the metrics of cheapness:

    • EV/EBITDA = 5.42
    • P/E = 6.65
    • P/B = 1.49
    • P/CF = 6.78
    • P/S = 0.65

ROE is 28.3%, which is good.

The Piotroski F_Score is 7, which is quite good.

Insider ownership is 11.1%, which is decent.  Cash is $9.5 million, while debt $35.5 million.  Total liabilities to total assets is 51.9%, which is OK.

Intrinsic value scenarios:

    • Low case: If there’s a bear market and/or a recession, the stock could decline.  That would be a buying opportunity.
    • Mid case: The company should have a P/E of at least 12.  That would mean the stock is worth $23.06, which is about 80% higher than today’s $12.78.
    • High case: Arguably, the company should have a P/E of 15.  That would mean the stock is worth $28.83, which is over 125% higher than today’s $12.78.
    • Very high case: If PPIH can continue to ramp its revenues, the P/E could reach 20.  That would mean the stock is worth $38.44, which is 200% higher than today’s $12.78.

 RISKS

    • If there’s a bear market or a recession, the stock would probably decline.
    • If the company does not continue to win new business, revenue and earnings would decline.

 

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This outperformance increases significantly by focusing on cheap micro caps. Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals. We rank microcap stocks based on these and similar criteria.

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