Matrix: A Beaten-Down Industrials Name Reports Monday. More Bearish Action Likely

Sep. 11, 2022 8:30 AM ETMatrix Service Company (MTRX)XLI3 Comments

Summary

  • The Industrials sector has seen bullish relative strength during the past year.
  • One small construction company reports results Monday AMC, but a poor earnings beat rate history suggests bad news to come.
  • The options market expects a big stock price move out of Matrix Services Company, and its technical chart is bearish.

Three multi-ethnic construction workers chatting

kali9

The Industrials sector endured a dreadful stretch versus the broad market from early 2018 through the Covid lows of March 2020. These economically sensitive stocks tend to do better when there is optimism about future growth prospects across the macro landscape. That does not seem to describe the current situation, but I’m spotting some green shoots with Industrial compared to the S&P 500.

The Industrial Select Sector SPDR ETF (XLI) is near its highest relative level in more than a year. Investors should watch the XLI:SPY relative chart for clues on the market, which usually turns ahead of the economy. One small engineering company has a troubled past and reports results early this week.

Industrials Perking Up vs SPY

Industrials Perking Up vs SPY

StockCharts

According to CFRA Research, Matrix Service Company (NASDAQ:MTRX) provides engineering, fabrication, infrastructure, construction, and maintenance services primarily to the oil, gas, power, petrochemical, industrial, agricultural, mining, and minerals markets in the United States, Canada, South Korea, Australia, and internationally.

The Oklahoma-based $150 million market cap Construction & Engineering industry company within the Industrials sector has negative earnings over the trailing 12 months, according to The Wall Street Journal, and has a poor EPS beat rate history. Remarkably, the company has missed the consensus earnings forecast in each of the previous 11 quarters. So it’s hard to expect good things to be reported later this week.

Matrix: A Miserable Earnings Beat Rate History

Matrix: A Miserable Earnings Beat Rate History

Seeking Alpha

On valuation, Seeking Alpha rates the stock with an A+, but there’s relatively little in the way of consistent metrics to confirm that. I do notice, though, that MTRX’s forward price-to-sales ratio is at the very low end of its history. That suggests there is a high degree of pessimism baked into the stock price. At under 0.2 times next year’s sales, it's about half the average valuation.

MTRX: Historical Forward Price-to-Sales Ratio

MTRX: Historical Forward Price-to-Sales Ratio

YCharts

According to Wall Street Horizon’s corporate event data, Matrix has a confirmed Q4 2022 earnings date Monday, September 12 AMC with an earnings conference call to follow on Tuesday morning. You can listen live here. Its Q1 2023 release is slated for Monday, November 7 AMC.

Matrix: Corporate Event Calendar

Matrix: Corporate Event Calendar

Wall Street Horizon

The Options Angle

With an awful earnings beat rate history and a low price-to-sales valuation, what does the options market say about what could happen Monday evening and Tuesday, post-earnings? Traders see a large 14.8% share price swing using the nearest-expiring at-the-money straddle. The consensus EPS forecast, according to data from Option Research & Technology Services (ORATS), is for a per-share loss of $0.30. Last quarter, the stock moved more than 16% after the company reported results.

Options Price In A Big Stock Price Swing on Tuesday

Options Price In A Big Stock Price Swing on Tuesday

ORATS

The Technical Take

MTRX is in a clear bearish downtrend. There is also a hefty number of shares traded in the $6 to $7 range – that's bearish overhead supply. Thus, there’s a confluence of resistance that lies just above the current stock price. MTRX is, however, trending higher off its low under $5 back in early July. Notice that the recent spike above $6 was quickly sold into – that was the stocks’ late 2021 and early 2022 range lows.

Overall, the trend is bearish and there is resistance evident above the stock price. I would wait for a bullish breakout above $7.50 before getting long.

MTRX: Bearish Downtrend, Overhead Supply of Shares

MTRX: Bearish Downtrend, Overhead Supply of Shares

StockCharts

The Bottom Line

Investors should avoid Matrix ahead of earnings Monday. A bearish price trend supersedes a low valuation in this case. Moreover, the firm’s incredibly poor EPS beat rate history portends bad news Monday evening. The options market prices in a big swing, and I think that will be to the downside.

This article was written by

CFA & CMT Charterholder | Freelance Financial Writer at SoFi & Ally | Investments | Markets | Personal Finance | RetirementI create written content used in various formats including blogs, emails, white papers, and social media for financial advisors and investment firms in a cost-efficient way. My passion is putting a narrative to financial data. Working with teams that include senior editors, investment strategists, marketing managers, data analysts, and executives, I contribute ideas to help make content relevant, accessible, and measurable. Having expertise in thematic investing, market events, client education, and compelling investment outlooks, I relate to everyday investors in a pithy way. I enjoy analyzing stock market sectors, ETFs, economic data, and broad market conditions, then producing snackable content for various audiences. Macro drivers of asset classes such as stocks, bonds, commodities, currencies, and crypto excite me. I truly enjoy communicating finance with an educational and creative style. I also believe in producing evidence-based narratives using empirical data to drive home points. Charts are one of the many tools I leverage to tell a story in a simple but engaging way. I focus on SEO and specific style guides when appropriate. My CFA and CMT backgrounds demonstrate prowess in investment management and my professional experience includes extensive public speaking and communication. Moreover, my extensive university teaching and professional trading experience provide useful skills. Past roles also include heavy use of Excel modeling and chart creation as well as PowerPoint.I am a contributor to The Dividend Freedom Tribe. I am a contributor to Topdown Charts.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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