"They're simply not good enough compete in this industry."
And this sort of result gets delivered when things are ostensibly booming and there's more than enough work to go round.
What happens to these guys when the pipeline narrows and the competition intensifies for the shrinking pie?
In that light, refer to today's result announcement from DUR (generally considered to be a very good operator), which references a reduction in that company's order book.
DUR's stock is down 16% at the time of writing this.
Sure, one snapshot at one point in time from one company doesn't a complete macro thematic make, but when the central case investment scenario for engineering construction companies is akin to "Thunderbirds Are Go" then, to the extent that the pipeline of work narrows and the competition for that narrowing pipeline of work rises, that will be very unhelpful for operating margins in the industry.
Not saying it is a certainty; nor even a probability, but certainly a possibility.
And after years of strong industry tailwinds, I'm not sure too many investors in this space are factoring in the prospect of those headwinds possibly turning the other way.
I think a lot of people forget just how rigid the cost structures of these business models are and therefore how acute the operating leverage is (and on the way down, too, just like on the way up).
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DCG Price at posting:
16.8¢ Sentiment: None Disclosure: Held
