Is Insteel Industries, Inc. overvalued or undervalued?

As of 31 January 2025, the valuation grade for Insteel Industries, Inc. has moved from fair to expensive. The company is currently considered overvalued based on its financial metrics. The P/E ratio stands at 29, while the industry average P/E is significantly lower, indicating a premium valuation. Additionally, the EV to EBITDA ratio is 15.04, which further supports the overvaluation narrative, especially when compared to peers like Olympic Steel, Inc. with an EV to EBITDA of 8.13 and NL Industries, Inc. at 5.30.
Insteel's return on equity (ROE) is 6.98% and return on capital employed (ROCE) is 8.80%, which are relatively low compared to the high valuation ratios. The company has outperformed the S&P 500 in the year-to-date period with a return of 33.40% versus 2.44%, yet this strong performance does not justify its current valuation levels. Overall, the combination of high valuation ratios and lower profitability metrics suggests that Insteel Industries, Inc. is overvalued in the current market.