Nesco

For this kind of business I always struggle to find operating leverage. To expand growth the company needs to be building new facilities with long gestation cycles.

In the short run, to increase topline, best they can do is increase the prices but with increasing competition not sure if it will be viable. Plus don’t see any differentiation in their offerings. With such high margins, it’s a matter of time new players will start coming up with the same solutions driving down margins.

So NESCO’s is a business, that doesn’t have any operating leverage or competitive differentiation and yet they continue to generate 40-50% PAT (quite uncommon in asset-intensive businesses).

Could this be the reason that valuations (18 p/e) are subdued and rerating has happened ever since company was listed (multiples are trading at long term averages)?

Would like to get some more views that explain low multiples despite such high profits and cash flows.