Sterling Infrastructure: Expensive In A Competitive Market

Summary:

• Sterling Infrastructure’s valuation has surged from under 10x PE to 27x PE due to growth in its e-commerce infrastructure division, making it potentially overvalued.
• The construction business is asset-light with high returns but faces challenges like non-recurring revenue, macroeconomic susceptibility, and low barriers to entry.
• Sterling’s backlog is over $2bn, but future revenue growth and margins are expected to plateau, making further valuation expansion unlikely.
• I rate Sterling a Sell due to its high valuation, competitive sector risks, and better alternatives in the data center supply chain.

Introduction

I have analyzed and written on the data center supply chain covering electricity stocks such as Talen (TLN), server and router companies Hewlett Packard Enterprise (HPE) and Arista Networks (

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