Matrix Service (MTRX)

Industrial construction and maintenance company Matrix Service (NASDAQ:MTRX) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 20.6% year on year to $200.2 million. The company’s full-year revenue guidance of $785 million at the midpoint came in 8.1% below analysts’ estimates. Its non-GAAP loss of $0.12 per share was significantly below analysts’ consensus estimates.

Company Overview

Founded in Oklahoma, Matrix Service (NASDAQ:MTRX) provides engineering, fabrication, construction, and maintenance services primarily to the energy and industrial markets.

Construction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.

Competitors in the industrial and construction sectors include Fluor Corporation (NYSE:FLR), McDermott International (NYSE: MDR), and Chicago Bridge & Iron (NYSE:CBI)

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Matrix Service’s demand was weak and its revenue declined by 10.7% per year. This was below our standards and is a sign of lacking business quality.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Matrix Service’s annualized revenue declines of 3.1% over the last two years suggest its demand continued shrinking.

This quarter, Matrix Service generated an excellent 20.6% year-on-year revenue growth rate, but its $200.2 million of revenue fell short of Wall Street’s high expectations.

Looking ahead, sell-side analysts expect revenue to grow 28.9% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and implies its newer products and services will spur better top-line performance.

Matrix Service has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 4.2% gross margin over the last five years. That means Matrix Service paid its suppliers a lot of money ($95.79 for every $100 in revenue) to run its business.

This quarter, Matrix Service’s gross profit margin was 6.4%, up 3.1 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Matrix Service’s high expenses have contributed to an average operating margin of negative 5.4% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Looking at the trend in its profitability, Matrix Service’s operating margin might fluctuated slightly but has generally stayed the same over the last five years, which doesn’t help its cause.

This quarter, Matrix Service generated a negative 2.5% operating margin. The company's consistent lack of profits raise a flag.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Matrix Service, its EPS declined by 23.9% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

We can take a deeper look into Matrix Service’s earnings to better understand the drivers of its performance. A five-year view shows Matrix Service has diluted its shareholders, growing its share count by 5.1%. This has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Matrix Service, its two-year annual EPS growth of 28.1% was higher than its five-year trend. Its improving earnings is an encouraging data point, but a caveat is that its EPS is still in the red.

In Q1, Matrix Service reported EPS at negative $0.12, up from negative $0.53 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Matrix Service’s full-year EPS of negative $0.79 will flip to positive $0.76.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Matrix Service has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.3%, lousy for an industrials business.

Taking a step back, an encouraging sign is that Matrix Service’s margin expanded by 16.5 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

Matrix Service’s free cash flow clocked in at $28.68 million in Q1, equivalent to a 14.3% margin. This result was good as its margin was 2.3 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Companies with more cash than debt have lower bankruptcy risk.

Matrix Service is a well-capitalized company with $185.5 million of cash and $21.47 million of debt on its balance sheet. This $164.1 million net cash position is 48.5% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We struggled to find many positives in these results. Its full-year revenue guidance missed significantly and its revenue fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $12.26 immediately following the results.

Updated: May 16, 2025 at 11:20 PM EDT

Before making an investment decision, investors should account for Matrix Service’s business fundamentals and valuation in addition to what happened in the latest quarter.

Matrix Service isn’t a terrible business, but it doesn’t pass our quality test. For starters, its revenue has declined over the last five years. And while its rising cash profitability gives it more optionality, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its operating margins reveal poor profitability compared to other industrials companies.

Matrix Service’s P/E ratio based on the next 12 months is 16.9x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $17 on the company (compared to the current share price of $12.77).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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