A Look At Innovex International (INVX) Valuation After Secondary Offering And Planned Buyback

Innovex International (INVX) has moved back into focus after existing shareholders completed a US$148.1 million follow on equity offering of 5,750,000 common shares at US$25.75 each, alongside a planned share repurchase.

See our latest analysis for Innovex International.

The follow-on sale at US$25.75 has come alongside a period of mixed short-term trading, with a 1-day share price return of a 3.05% decline and a 7-day share price return of an 11% decline. However, the 30-day and year-to-date share price returns of 3.5% and 12.91% respectively sit against a 1-year total shareholder return of 50.32%, indicating that recent volatility contrasts with a strong longer term run-up.

If this secondary offering has you thinking about where else capital might flow in energy-related names, it could be worth checking our screener of 23 power grid technology and infrastructure stocks as a starting point for other ideas.

With a recent secondary sale, a planned buyback, and mixed earnings trends all in the mix, the key question now is whether Innovex looks undervalued or if the current price already reflects future growth expectations.

Preferred P/E of 21.3x: Is it justified?

On Simply Wall St’s checks, Innovex International is described as good value, with a P/E of 21.3x that sits below both its peer group and the wider US Energy Services industry, despite a last close of $25.72 and a 1 year total shareholder return of 50.32%.

The P/E multiple compares the current share price with the company’s earnings per share and is a common way investors frame what they are paying for each unit of profit. For a business supplying mission critical tools across drilling, completion and production, earnings are a key reference point because they sit after operating costs and interest, and can reflect how well the company is converting its revenue base into profit.

Here, Innovex’s 21.3x P/E is flagged as attractive relative to the US Energy Services industry average of 27.5x and an even higher peer average of 42.2x. That gap suggests the market is valuing Innovex’s earnings at a lower level than many comparable companies, even though the company has high quality earnings and has grown earnings by 29.3% per year over the past 5 years, albeit with a 40.6% earnings decline over the most recent year and a compression in net profit margin from 21.2% to 8.5%.

Result: Price to earnings of 21.3x (UNDERVALUED)

See what the numbers say about this price — find out in our valuation breakdown.

DCF estimate points to a large discount

Alongside the P/E view, the SWS DCF model indicates a fair value of $52.11 per share for Innovex International, compared with the last close at $25.72, which implies the shares are trading at a steep discount based on that approach.

The SWS DCF model does this by estimating the company’s future cash flows and then discounting them back to today using an appropriate rate, so that distant cash flows are given less weight than near term ones. This type of model can be helpful for a company like Innovex that is already profitable, with reported revenue of $978.251m and net income of $83.298m, because the inputs are grounded in existing cash generation rather than purely hypothetical turnarounds.

That said, any DCF output is sensitive to the assumptions that sit behind it, and Simply Wall St’s statement that Innovex is trading 50.6% below its estimate of fair value underlines how much hinges on the earnings and cash flow path from here, especially after a year of weaker margins and a 40.6% earnings decline.

Result: DCF Fair value of $52.11 (UNDERVALUED)

Look into how the SWS DCF model arrives at its fair value.

However, the recent 40.6% earnings decline and margin compression, combined with mixed short term share price performance, could challenge the case for continued valuation support.

Find out about the key risks to this Innovex International narrative.

Another way to look at it

While the P/E gap hints at value, the SWS DCF model goes further, suggesting fair value of $52.11 versus the current $25.72. That flags Innovex as heavily undervalued on cash flow assumptions, but it also raises a key question: are those assumptions too generous after a 40.6% earnings decline?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Innovex International for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 49 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If the mix of strong long term returns and recent earnings pressure feels hard to balance, it can help to look at the numbers yourself and move quickly to shape your own view. You can start with the 1 key reward and 1 important warning sign we have already pulled together for you.

Looking for more investment ideas?

If you stop with just one company, you could miss other opportunities that better fit your style, so give yourself options by scanning a few focused shortlists.

• Target potential mispricing by reviewing our list of 49 high quality undervalued stocks, where price tags sit below what the fundamentals suggest.
• Strengthen your income stream by checking out 15 dividend fortresses, featuring companies with yields that stand out for payout focused investors.
• Prioritise resilience by running your eye over the 75 resilient stocks with low risk scores, highlighting businesses with lower risk scores and steadier profiles.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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