IA Stock Study (10-16-26)

Posted by Mark on October 15, 2026 at 07:29 | Last modified: October 16, 2026 11:59

I recently studied Innovative Solutions and Support, Inc. (IA, $18.89).

M* writes:

     > Innovative Solutions and Support Inc is a systems integrator that designs,
     > manufactures, sells, and services air data equipment, engine display
     > systems, standby equipment, primary flight guidance, and cockpit display
     > systems for retrofit applications and original equipment manufacturers.
     > The company supplies integrated Flight Management Systems, Flat Panel
     > Display Systems, Integrated Standby Units, Positioning System receivers
     > that enable reduced carbon footprint navigation, and an Autothrottle,
     > which allows a pilot to automatically control the power setting of the
     > engine and is designed to reduce pilot workload and enhance safety.
     > It sells its products to both the OEM and the retrofit markets.

Since 2019, this small-size company has grown sales and EPS at annualized rates of 26.9% and 32.7%, respectively (FY ends Sep 30). Lines are mostly up, straight, and parallel. Five-year EPS R^2 is 0.76, and Value Line (VL) gives an Earnings Predictability score of 55. Shares outstanding increase 14.1% (1.5% per year).

Since 2019, PTPM leads peer and industry averages while increasing from 10.5% to 23.7% (’25) with a last-5-year mean of 21.6%. ROE leads peer averages but trails the industry while increasing from 5.3% to 27.3% (’25) with a last-5-year mean of 20.3% (shareholder equity a bit choppy but consistently positive and increasing 10.6% per year). Debt-to-Capital is less than peer and industry averages despite increasing from zero to 27.2% with a last-5-year mean of 19.7%.

Quick ratio is 1.33 and interest coverage 10.7 per M* who assigns no economic moat and a C trade for Financial Health (per BI website). VL gives a B rating for Financial Strength.

RightStock—a new tool on the BI website that I am tracking for informational purposes—gives a fitness score of 80 [“strong,” citing inconsistent earnings growth and poor (high) debt levels?] and opportunity score of 84 [“strong,” citing weak (“somewhat expensive” 0.88) relative valuation?].

With regard to sales growth:

• YF gives YOY ACE 18.2% and 18.3% for ’26 and ’27, respectively (based on 4 analysts).
• Zacks gives YOY ACE 19.4% and 15.2% for ’26 and ’27, respectively (1 analyst).
• CFRA projects 18.3% YOY and 18.6% per year for ’26 and ’25-’27, respectively.

My 9.0% forecast is well below the short-term range (no long-term projections available).

With regard to EPS growth:

• MarketWatch gives ACE 34.3% and 29.0% per year for ’25-’27 and ’25-’28 (based on 4 analysts).
• Nasdaq.com gives ACE 8.7% YOY for ’27 (1 analyst).
• Seeking Alpha projects 4-year annualized growth of 16.2%.
• Finviz gives 5-year annualized ACE of 14.1% (1).
• LSEG has LTG at 16.2%.
• YF gives YOY ACE of 23.0% growth and 2.1% contraction for ’26 and ’27, respectively (3).
• Zacks gives ACE YOY growth of 12.0% and 20.4% for ’26 and ’27 (1).
• VL gives ACE 5.2% per year growth for next 2.5 years (1).
• CFRA projects 26.1% growth YOY and 11.3% per year for ’26 and ’25-’27, respectively.

My 10.0% per year forecast is below the long-term-estimate range (mean of only three: 15.5%). Initial value is ’25 EPS of $0.88/share rather than 2026 Q3 $1.05 (TTM).

My Forecast High P/E is 22.0. Since 2019, high P/E falls from 53.2 to 22.7 (’25) with last-5-year mean of 26.4 and a last-5-year-mean average P/E of 20.4. I am below the 7-year range.

My Forecast Low P/E is 12.0. Since 2019, low P/E ranges from 6.0 in ’25 to 18.4 (’19 and ’21) with a last-5-year mean of 14.4. I am forecasting less than all but ’25 and ’20 (6.3).

My Low Stock Price Forecast (LSPF) of $10.60 is default based on initial value from above: 43.9% less than previous close and 30.9% less than the 52-week low.

These inputs land IA in the HOLD zone with a U/D ratio of 1.4. Total Annualized Return (TAR) is 10.0%.

The company pays special cash dividends only in 2020 (per Google AI). I am forecasting a payout ratio (PR) of zero.

PAR (using Forecast Average—not High—P/E) of 4.5% is less than I seek in a small-size company. If a solid margin of safety (MOS) backs this study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with Member Sentiment (MS). Based on 143 studies done in the past 90 days (my study and 40 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 14.2%, 12.4%, 24.3, 13.9, and 137.7%. I am lower across the board.

MS high / low EPS are $1.88 / $1.02 versus my $1.42 / $0.88 (per share). My high EPS is less due to lower growth rate.

MS LSPF of $14.00 implies a Forecast Low P/E of 13.7: slightly less than the above-stated 13.9. MS LSPF is 1.3% less than the default $1.02/share * 13.9 = $14.18 resulting in more conservative zoning. MS LSPF is 32.1% greater than mine, however.

MOS is strong in the study because my inputs are below/near most historical/analyst/MS estimates and ranges. Supporting the MOS is MS TAR exceeding mine by 14.0% per year (seems unreasonably high despite excluding VL as a long-term estimate; see further discussion below) and my substantially lower LSPF.

With regard to valuation, PEG is 0.60 and 1.7 per M* and my projected P/E, respectively: fairly valued on average. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.90. M* reports stock at a 7% premium.

70% of MS studies erroneously forecast PR of 172.4% (2021 BI website data point). First, the historical PR graph shows no regular, consistent dividend. Second, 172.4% PR is not sustainable for a regular dividend anyway. Third, a simple internet search explains the 172.4% as a special dividend rather than a regular one to be projected. This unreasonable forecast may suggest people are leaving the input to default (deceptively boosting TAR by 7.8%) rather than applying judgment.

Per U/D, IA is a BUY under $15.50 per share. Given forecast high price ~$31, [31.2 / ((14.87 / 100 ) +1 ) ^ 5] ~ $15.50 also meets the BetterInvesting® TAR criterion.

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