Insteel (IIIN)

Steel wire manufacturer Insteel (NYSE:IIIN) missed Wall Street’s revenue expectations in Q4 CY2025, but sales rose 23.3% year on year to $159.9 million. Its GAAP profit of $0.39 per share was 4% above analysts’ consensus estimates.

Company Overview

Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE:IIIN) provides steel wire reinforcing products for concrete.

Commercial building products companies, which often serve more complicated projects, can supplement their core business with higher-margin installation and consulting services revenues. More recently, advances to address labor availability and job site productivity have spurred innovation. Additionally, companies in the space that can produce more energy-efficient materials have opportunities to take share. However, these companies are at the whim of commercial construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of commercial building products companies.

Other companies offering reinforcement products for the construction market include Nucor (NYSE:NUE), Commercial Metals (NYSE:CMC), and Gerdau (NYSE:GGB).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Insteel’s 6.5% annualized revenue growth over the last five years was mediocre. This was below our standard for the industrials sector and is a rough starting point for our analysis.

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. Insteel’s annualized revenue growth of 5.9% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

This quarter, Insteel generated an excellent 23.3% year-on-year revenue growth rate, but its $159.9 million of revenue fell short of Wall Street’s high expectations.

Looking ahead, sell-side analysts expect revenue to grow 9.7% over the next 12 months, an improvement versus the last two years. This projection is healthy and indicates its newer products and services will spur better top-line performance.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

Insteel has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 16% gross margin over the last five years. That means Insteel paid its suppliers a lot of money ($84.00 for every $100 in revenue) to run its business.

Insteel produced a 11.3% gross profit margin in Q4, marking a 3.9 percentage point increase from 7.3% in the same quarter last year. Insteel’s full-year margin has also been trending up over the past 12 months, increasing by 5.2 percentage points. If this move continues, it could suggest a less competitive environment where the company has better pricing power and leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Insteel has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.9%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Insteel’s operating margin decreased by 7.5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, Insteel generated an operating margin profit margin of 5.8%, up 4.5 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

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.

Insteel’s EPS grew at a remarkable 12.1% compounded annual growth rate over the last five years, higher than its 6.5% annualized revenue growth. However, we take this with a grain of salt because its operating margin didn’t improve and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Insteel’s two-year annual EPS growth of 45.4% was fantastic and topped its 5.9% two-year revenue growth.

Diving into Insteel’s quality of earnings can give us a better understanding of its performance. Insteel’s operating margin has expanded over the last two years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q4, Insteel reported EPS of $0.39, up from $0.06 in the same quarter last year. This print beat analysts’ estimates by 4%. Over the next 12 months, Wall Street expects Insteel’s full-year EPS of $2.43 to grow 10.9%.

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.

Insteel has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6% over the last five years, slightly better than the broader industrials sector.

Taking a step back, we can see that Insteel’s margin dropped by 8.3 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Insteel burned through $2.20 million of cash in Q4, equivalent to a negative 1.4% margin. The company’s cash flow turned negative after being positive in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Insteel hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 20.7%, splendid for an industrials business.

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, Insteel’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Insteel is a profitable, well-capitalized company with $15.59 million of cash and no debt. This position is 2.4% 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.

It was encouraging to see Insteel beat analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its revenue slightly missed. Overall, this quarter could have been better. The stock remained flat at $33.63 immediately following the results.

Updated: January 15, 2026 at 6:49 AM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Insteel, you should also grasp the company’s longer-term business quality and valuation.

Insteel isn’t a terrible business, but it doesn’t pass our bar. For starters, its revenue growth was mediocre over the last five years. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining operating margin shows the business has become less efficient.

Insteel’s P/E ratio based on the next 12 months is 11.1x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $39 on the company (compared to the current share price of $33.63).

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.