Insteel Should See Better Pricing, But End-User Demand Is A Real Question

I liked Insteel (IIIN) back in August of 2020, when the company was still under pressure from cheap imports and seeing double-digit price declines despite healthy demand across its markets. Since then, not only has construction activity remained surprisingly strong, but the company also won an anti-dumping case in PC strand and is likely to see further positive actions on the regulatory front. Strong demand and good operating leverage have helped fuel profits and cash flow, sending the shares up about 80% from the time of that last article.

With all the moving parts that feed into Insteel’s business, there’s never really a time when things seem crystal clear, so uncertainty is just par for the course. To that end, while I expect improved pricing realizations and stronger gross margins this year, I’m concerned about a more significant shortfall in demand as non-residential building slows and municipalities have smaller budgets for roads and other infrastructure projects. I do expect federal stimulus to help, but likely not in 2021.

Depending on what happens with a federal infrastructure bill and price realizations now that anti-dumping duties are in place, I believe these shares have more room to run and will likely retest, if not exceed, prior highs around $40. I would caution investors, though, that these are shares that should be bought to be sold; the business is well-run but deeply cyclical, and I think investors would do well to consider an exit strategy when things are looking their best.

 

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Insteel Should See Better Pricing, But End-User Demand Is A Real Question