Perma-Fix (PESI)

Environmental waste treatment and services provider Perma-Fix (NASDAQ:PESI) missed Wall Street’s revenue expectations in Q1 CY2025 as sales rose 2.2% year on year to $13.92 million. Its GAAP loss of $0.19 per share was 35.7% below analysts’ consensus estimates.

Company Overview

Tackling hazardous waste challenges since 1990, Perma-Fix (NASDAQ:PESI) provides environmental waste treatment services.

Waste management companies can possess licenses permitting them to handle hazardous materials. Furthermore, many services are performed through contracts and statutorily mandated, non-discretionary, or recurring, leading to more predictable revenue streams. However, regulation can be a headwind, rendering existing services obsolete or forcing companies to invest precious capital to comply with new, more environmentally-friendly rules. Lastly, waste management companies are at the whim of economic cycles. Interest rates, for example, can greatly impact industrial production or commercial projects that create waste and byproducts.

Competitors of Perma-Fix include US Ecology (NASDAQ:ECOL), Clean Harbors (NYSE:CLH), and Heritage-Crystal Clean (NASDAQ:HCCI).

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Perma-Fix’s demand was weak and its revenue declined by 7.3% per year. This wasn’t a great result and is a sign of poor 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. Perma-Fix’s recent performance shows its demand remained suppressed as its revenue has declined by 10.9% annually over the last two years.

This quarter, Perma-Fix’s revenue grew by 2.2% year on year to $13.92 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 62.1% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and suggests its newer products and services will fuel better top-line performance.

Perma-Fix has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 11.6% gross margin over the last five years. Said differently, Perma-Fix had to pay a chunky $88.42 to its suppliers for every $100 in revenue.

In Q1, Perma-Fix produced a 4.7% gross profit margin, up 9.3 percentage points year on year. Zooming out, however, Perma-Fix’s full-year margin has been trending down over the past 12 months, decreasing by 13.2 percentage points. If this move continues, it could suggest deteriorating pricing power and higher input costs (such as raw materials and manufacturing expenses).

Perma-Fix’s high expenses have contributed to an average operating margin of negative 7.5% 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, Perma-Fix’s operating margin decreased by 26 percentage points over the last five years. Perma-Fix’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

Perma-Fix’s operating margin was negative 26.8% this quarter. The company's consistent lack of profits raise a flag.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Perma-Fix’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 5.4%, meaning it lit $5.40 of cash on fire for every $100 in revenue.

Taking a step back, we can see that Perma-Fix’s margin dropped by 33.3 percentage points during that time. Almost any movement in the wrong direction is undesirable because it is already burning cash. If the trend continues, it could signal it’s becoming a more capital-intensive business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Perma-Fix’s five-year average ROIC was negative 5.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the industrials sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Perma-Fix’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Perma-Fix is a well-capitalized company with $25.75 million of cash and no debt. This position is 15.8% 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 revenue missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 3.6% to $8.53 immediately after reporting.

Updated: May 18, 2025 at 11:15 PM EDT

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

We cheer for all companies making their customers lives easier, but in the case of Perma-Fix, we’ll be cheering from the sidelines. To begin with, its revenue has declined over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Perma-Fix’s EV-to-EBITDA ratio based on the next 12 months is 91.3x. This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $18 on the company (compared to the current share price of $9.61).

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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