DIRTT Environmental Solutions is benefiting from a shift in demand for its customized office interiors. Those new clients have boosted revenue. Still the company faces strong competition in its highly fragmented industry. DIRTT Environmental Solutions is okay to hold for aggressive investors.
DIRTT Environmental Solutions Ltd. (symbol DRT on Toronto; www.dirtt.net) designs and builds customized office interiors. DIRTT stands for “doing it right this time.”
The company believes its ICE 3-D software lets it deliver pre-made, customizable interiors faster and more efficiently than traditional construction methods. DIRTT first sold shares to the public at $3 each and began trading on Toronto in November 2013.
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In the three months ended September 30, 2015, the company’s revenue rose 33.1%, to $62.1 million from $46.7 million a year earlier. DIRTT gets 80% of its revenue from clients in the U.S., so it gains from a higher U.S. dollar. As well, increased demand from the financial services, real estate, retail and scientific industries offset a decline in projects from oil and gas companies.
DIRTT’s earnings rose 256.9%, to $5.4 million from $1.5 million. Per-share profits gained 200.0%, to $0.06 from $0.02, on more shares outstanding. The higher revenue, plus lower costs for building materials, helped push up earnings.
The company holds cash of $92.3 million, or $1.10 a share, and its long-term debt is just $10.3 million, or 2% of its market cap.
Mogens Falk Smed, who founded SMED Manufacturing in 1983, has been DIRTT’s CEO since May 2004. SMED designed, made and sold office furniture.
SMED was one of the first recommendations of our Stock Pickers Digest newsletter. We first recommended the stock in the November 1998 issue at $8. In January 2000, SMED entered into an agreement with U.S.-based Haworth Inc. that saw Haworth acquire the company for $24 a share.
Mogens Smed’s involvement gives DIRTT some speculative appeal, but the company operates in a competitive market and may have trouble reporting consistent profits. We generally avoid new issues, since they tend to come on the market when it’s a good time for the company or its insiders to sell. This may not be a good time for you to buy. However, the customized office interior construction business is highly fragmented. DIRTT’s specialized software, and the business contacts of its founder, may provide a competitive advantage.
Inner Circle recommendation: HOLD for aggressive investors.
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