Insteel (IIIN)

Steel wire manufacturer Insteel (NYSE:IIIN) fell short of the market’s revenue expectations in Q3 CY2025, but sales rose 32.1% year on year to $177.4 million. Its GAAP profit of $0.74 per share was 5.1% below 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).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. 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 recent performance shows its demand has slowed as its revenue was flat over the last two years.

This quarter, Insteel pulled off a wonderful 32.1% year-on-year revenue growth rate, but its $177.4 million of revenue fell short of Wall Street’s rosy estimates.

Looking ahead, sell-side analysts expect revenue to grow 15.5% 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 spur better top-line performance.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Insteel has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 16.3% gross margin over the last five years. That means Insteel paid its suppliers a lot of money ($83.74 for every $100 in revenue) to run its business.

This quarter, Insteel’s gross profit margin was 16.1%, up 7 percentage points year on year. Insteel’s full-year margin has also been trending up over the past 12 months, increasing by 5 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).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

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 11.1%. 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 6.7 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 Q3, Insteel generated an operating margin profit margin of 10.7%, up 7.1 percentage points year on year. The increase was solid, 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.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Insteel’s EPS grew at a spectacular 16.5% compounded annual growth rate over the last five years, higher than its 6.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

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

For Insteel, its two-year annual EPS growth of 12.5% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Insteel reported EPS of $0.74, up from $0.24 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Insteel’s full-year EPS of $2.10 to grow 41.9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

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 6.5% 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 5.9 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Insteel burned through $18.73 million of cash in Q3, equivalent to a negative 10.6% 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 21.4%, 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. Over the last few years, Insteel’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Insteel is a profitable, well-capitalized company with $38.63 million of cash and no debt. This position is 5.3% 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 EPS missed and its revenue fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 5.8% to $35.38 immediately following the results.

Updated: December 4, 2025 at 10:25 PM 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 isn’t one of our picks. To begin with, its revenue growth was mediocre 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 declining operating margin shows the business has become less efficient.

Insteel’s P/E ratio based on the next 12 months is 10.7x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $39 on the company (compared to the current share price of $31.40).

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.