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Here's Why Encore Wire Stock Is Up More Than 14% This Week

By Jim Halley – Oct 28, 2021 at 3:37PM

Key Points

  • The company posted encouraging numbers in its third-quarter report.
  • The price of copper remains high.

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The wire manufacturer's stock rose more than $15 this week.

What happened

Encore Wire (WIRE 1.35%) saw its shares shoot up more than 14% this week. The company, which manufactures copper and aluminum electric building wire and cable, opened on Monday at $114.62 and rose as high as $131.28 on Thursday, which is its 52-week high. The stock is up more than 114% this year.

So what

The stock came out with strong numbers in its third-quarter report on Tuesday. Through nine months, the company reported net income of $399.8 million, up 669% year over year with EBITDA of $534.1 million, up 551% over the same period in 2020. Revenue through nine months was $1.9 billion, up 113%, and gross profit percentage through Sept. 30 was 33.2% compared to 15.1% the same nine-month period in 2020.

A worker rolls a giant spool designed for wiring.

Image source: Getty Images.

There are a lot of other reasons to like Encore. It has no long-term debt, it improved its cash position to $294.9 million through Sept. 30, up from $157.9 million sequentially, and in the quarter it repurchased 393,379 shares of its stock.

WIRE EPS Basic (TTM) Chart

WIRE EPS Basic (TTM) data by YCharts

Now what

With a price-to-earnings ratio of 10, the infrastructure stock appears to be a good buy despite the rise in the stock's price. The price of copper came down a bit in the quarter, but it remains near its all-time high of $4.88 per pound and that's good for Encore. CEO Daniel L. Jones, in his company's third-quarter earnings call, said its vertical integration has allowed it to produce copper and aluminum wire at lower costs than competitors, leading to higher profit margins and less supply disruption, with strong fill rates.

Encore has been a steady performer for a while. Over the past five years, the company's earnings per share has risen 1,160% while revenue has risen 143% over the period.

One concern will be how much the China Evergrande Group debt crisis affects the copper wire market as that country is the world's largest purchaser of copper. However, other factors point to a potential boom in electric wiring, at least domestically. With more people working from home, there's a need for better electric and internet connections; Congress' goals for improving infrastructure will also boost demand for more electrical wiring, particularly in electric vehicles; and the expected housing boom to meet a tight supply will create the need for more wiring as well.

Jim Halley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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