Waste and recycling services provider Quest Resource (NASDAQ:QRHC) missed Wall Street’s revenue expectations in Q4 CY2024, with sales flat year on year at $69.97 million. Its non-GAAP loss of $0.09 per share was significantly below analysts’ consensus estimates.
Is now the time to buy Quest Resource? Find out in our full research report.
Revenue: $69.97 million vs analyst estimates of $73.63 million (flat year on year, 5% miss)
Adjusted EPS: -$0.09 vs analyst estimates of $0.03 (significant miss)
Adjusted EBITDA: $1.68 million vs analyst estimates of $3.73 million (2.4% margin, 55.1% miss)
Operating Margin: -10.3%, down from 0.5% in the same quarter last year
Market Capitalization: $88.73 million
Perry Moss, Quest’s Chief Executive Officer, stated, “I believe strongly in Quest’s value proposition and in the power of our platform. We have a tremendous roster of clients, and a highly capable organization focused on generating value for our stakeholders. Importantly, we have a robust pipeline of potential new business, and we expect to continue to deepen client relationships, add valuable services and solutions, invest in our business and people, and improve profitability.”
Recycling corporate waste to help companies be more sustainable, Quest Resource (NASDAQ:QRHC) is a provider of waste and recycling services.
Waste management companies can possess licenses permitting them to handle hazardous materials. Furthermore, many services are performed through contracts and statutorily mandated, non-discretionary, or recurring, leading to more predictable revenue streams. However, regulation can be a headwind, rendering existing services obsolete or forcing companies to invest precious capital to comply with new, more environmentally-friendly rules. Lastly, waste management companies are at the whim of economic cycles. Interest rates, for example, can greatly impact industrial production or commercial projects that create waste and byproducts.
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Quest Resource’s sales grew at an incredible 23.9% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.
Quest Resource Quarterly Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Quest Resource’s recent history shows its demand has slowed significantly as its revenue was flat over the last two years.
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Quest Resource Year-On-Year Revenue Growth
This quarter, Quest Resource’s $69.97 million of revenue was flat year on year, falling short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 12.5% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and suggests its newer products and services will spur better top-line performance.
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Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Quest Resource was roughly breakeven when averaging the last five years of quarterly operating profits, inadequate for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.
Looking at the trend in its profitability, Quest Resource’s operating margin decreased by 3.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. . Quest Resource’s performance was poor no matter how you look at it – it shows that costs were rising and it couldn’t pass them onto its customers.
In Q4, Quest Resource generated an operating profit margin of negative 10.3%, down 10.7 percentage points year on year. Since Quest Resource’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Quest Resource’s earnings losses deepened over the last five years as its EPS dropped 32% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Quest Resource’s low margin of safety could leave its stock price susceptible to large downswings.
Quest Resource Trailing 12-Month EPS (Non-GAAP)
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Quest Resource, its EPS declined by 46.6% annually over the last two years while its revenue was flat. This tells us the company struggled to adjust to choppy demand.
Diving into the nuances of Quest Resource’s earnings can give us a better understanding of its performance. Quest Resource’s operating margin has declined by 9.2 percentage points over the last two yearswhile its share count has grown 4.6%. This means the company not only became less efficient with its operating expenses but also diluted its shareholders.
Quest Resource Diluted Shares Outstanding
In Q4, Quest Resource reported EPS at negative $0.09, down from $0.03 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Quest Resource’s full-year EPS of negative $0.04 will reach break even.
We struggled to find many positives in these results. Its revenue missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $3.85 immediately following the results.
The latest quarter from Quest Resource’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
