STOCK TRADE: Buy ARTX at market price (approx. $5.82), good for the day. Place a protective stop-loss at $4.00 and a pre-determined sell at $11.00.
by Ian Harvey
March 31, 2014
A tiny company with huge potential is Arotech Corporation (NASDAQ: ARTX). The company is riding the trend toward electric powered vehicles by providing zinc-air and lithium batteries to the military. Arotech also supplies multimedia interactive simulators for military and civilian police use.
Perhaps most interesting is the company's SWIPES product, which stands for Soldier Worn Integrated Power Equipment System. Basically, SWIPES is a lightweight battery system worn into the battlefield to power a soldier's accessories. The U.S. Army named SWIPES one of the greatest inventions in 2011.
In addition, the company's work with iron flow batteries to provide storage for grid power is a potential huge profit generator. Stated simply, this is a highly efficient way to capture electricity produced by natural sources for use at a later time. The global energy storage market is expected to be $400 billion by 2030, and this product gives Arotech a solid chance of capturing part of this market.
Arotech Corporation is a defense and security products and services company, engaged in three business areas: interactive simulation for military, law enforcement and commercial markets; batteries and charging systems for the military. It operates primarily through its various subsidiaries, which it had organized into two divisions.
It manufactures and sells lithium and Zinc-Air batteries for defense and security products and other military applications through its Battery and Power Systems Division. It provides simulators, systems engineering and software products to the United States military, government and private industry. It develops, manufactures and market primary Zinc-Air batteries, rechargeable batteries and battery chargers for the military, focusing on applications that demand high energy and light weight, through its subsidiary Electric Fuel Battery Corporation (EFB), located in Auburn, Alabama.
|Current P/E Ratio (ttm)||30.6316|
|Relative P/E vs. SPX||1.7958|
|Earnings Per Share (USD) (ttm)||0.1900|
|Est. EPS (USD) (12/2013)||0.2800|
|Est. PEG Ratio||-|
|Market Cap (M USD)||116.59|
|Shares Outstanding (M)||20.03|
|30 Day Average Volume||2,101,460|
|Dividend Indicated Gross Yield||-%|
|5 Year Dividend Growth||-|
|Next Earnings Announcement||03/31/2014|
ARTX is a tiny company with a market cap of just under $85 million, trailing 12-month revenue of about $90 million and gross profits of $18 million. Total cash is just $4.86 million with total debt of $5.67 million.
As you can see in the graphic below, revenue and EBITDA has been increasing in a steady fashion.
In addition, the firm's revenue has been in a steady upswing across all divisions.
For the third quarter of 2013, ARTX posted record results. Revenue increased 8% year over year to $23.2 million. Gross profits hit $6.4 million, up from $5 million during the corresponding time last year. The company ramped up full-year 2013 guidance and is expecting revenues of $89 million to $90 million and full-year EBITDA to increase to $6.1 million to $6.3 million.
• ARTX's revenue growth has slightly outpaced the industry average of 7.3%. Since the same quarter one year prior, revenues slightly increased by 8.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
• ARTX's debt-to-equity ratio is very low at 0.12 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.39, which illustrates the ability to avoid short-term cash problems.
• The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to the other companies in the Aerospace & Defense industry and the overall market, AROTECH CORP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
• The gross profit margin for AROTECH CORP is currently lower than what is desirable, coming in at 28.70%. Regardless of ARTX's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 3.71% trails the industry average.
Plenty of Orders
On March 26th, 2014 the defense and security products company announced its battery division had received more than $2 million in orders from "two leading defense companies and manufacturers of military equipment," according to the company's statement.
Also, on March 4th, 2014 the company announced that it received a significant order worth $3.5 million. That order, the company said, came from one of its current customers. The repeat order involves supply of batteries and chargers that will be used in thermal imaging system and tactical communication devices. ARTX stated that the order came through its Battery and Power Systems arm. Commenting on the latest development, CEO and Chairman Robert S. Ehrlich observed that they are excited for the excellent start in 2014.
Shares are up more than 350% over the past 52 weeks. Much of this increase is due to speculation of continued improvement and growth. Future stock price moves are likely dependent on the full-year and fourth-quarter earnings release slated for March 31, after the close.
Therefore, based on the facts above the following stock trade is recommended…..
**STOCK TRADE: Buy ARTX at market price (approx. $5.82), good for the day. Place a protective stop-loss at $4.00 and a pre-determined sell at $11.00.