Why Cardinal Infrastructure Group Stock Just Crashed
Key Points
Cardinal Infrastructure Group posted a substantial sales beat in Q2, but earnings came in far below expectations.
Cardinal's margins are contracting, and growth for its backlog is slowing.
The company raised its full-year sales guidance, but investors have become less confident in the business's growth outlook.
Cardinal Infrastructure Group (NASDAQ: CDNL) stock is getting crushed in Tuesday's trading. Shares were down 25.7% as of 11:30 a.m. ET despite relatively little movement for the broader market.
Cardinal published its second-quarter report before the market opened this morning, publishing mixed results that have sent its valuation tumbling. While the company is getting hit with a dramatic valuation pullback, shares are still up roughly 78% year to date.
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Cardinal stock sinks following big earnings miss
With the Q2 report it published this morning, Cardinal delivered a significant revenue beat alongside a large earnings miss that is receiving far more investor focus. The company posted a profit of $0.26 per share on sales of $226.9 million, while the average analyst estimate had targeted earnings of $0.47 per share on sales of roughly $274.7 million.
Sales were up roughly 114% year over year, and the company raised its full-year guidance, but the increase for its backlog in Q2 came in at a more modest 35%. For reference, the company's backlog grew 60% year over year in Q1.
What's next for Cardinal?
Cardinal has raised its full-year sales guidance to between $880 million and $900 million -- far above the average analyst estimate for sales of roughly $717.7 million prior to the company's Q2 report. On the other hand, management lowered its non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) margin guidance to between 16% and 18% -- down from previous guidance for a margin greater than 20%.
While the company delivered a substantial sales beat, margins were far softer than anticipated in the quarter -- and investors are selling out of the stock in response to concerns about the quality of the business's revenue. With margins contracting and growth for the company's backlog seeing a substantial deceleration, the infrastructure services specialist's growth outlook may be weakening even though its headline revenue numbers look impressive.
Keith Noonan 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.