LSI Industries, Inc.

LYTS Details

LSI Industries, Inc. (NASDAQ: LYTS) is a manufacturer of non-residential lighting and display solutions. It operates in two segments: 1) Lighting, which manufactures and assembles both conventional and LED light sources for outdoor and indoor lighting solutions, as well as electronic circuit boards, assemblies, and sub-assemblies for retail and other commercial facilities; and 2) Display Solution, which develops and sells digital visual image elements for commercial organizations such as interior branding, electrical and architectural signage, and other electrical board systems. As of January 27, 2022, the company’s market capitalization stood at USD 161.52 million.

Latest News:

• Dividend Declaration: On January 27, 2022, the company declared a quarterly dividend of USD 0.05 per common share, payable on February 15, 2022, to shareholders of record on February 07, 2022.
• Recent Commercial Contract: JSI Store Fixtures, a wholly owned subsidiary of LSI, has been picked by one of the nation's leading supermarket chains to produce refrigerated display fixtures for its about 800 stores. The entire USD 17 million customer order is expected to be completed in the H2FY22.

Q2FY22 Results:

• Expansion in Topline: The company reported a YoY increase of 45.50% in net sales to USD 111.14 million in Q2FY22 (ended December 31, 2021) from USD 76.39 million in Q2FY21, attributable to 72.31% growth in the Display Solution segment.
• Growth in Profitability: LYTS reported a net income of USD 3.11 million in Q2FY22, increased from USD 2.21 million in Q2FY21.
• Cash and Debt Position: As of December 31, 2021, the company had cash & cash equivalents of USD 0.9 million and total outstanding debt of USD 83.03 million.

Key Risks:

• Customer Concentration Risk: The petroleum/convenience store market contributed 34% of LYTS' total revenue in FY21. As a result, any adverse changes in the economic environment of these markets could have a considerable influence on their financial success.
• Competition Risk: LYTS works in a highly competitive electrical equipment business with severe price competition from overseas competitors, which could place pricing pressure on the company. The company's financials may suffer if this tendency persists.

 Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation   

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LYTS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

LYTS's stock price decreased 28.22% in the past twelve months and is currently trading close to lower-band of its 52-week range of USD 5.96 to USD 10.58. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 62.39. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 6.28. 

Considering the sharp correction in the stock price, stiff competitive environment, current valuation, and technical indicators, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the closing price of USD 7.07, up 17.83%, as of January 27, 2022.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.