small-cap

Should Investors Exit From This Small-Cap Industrials Stock – ULBI

Mar 11, 2022 12:00 AM PST | Team Kalkine
Should Investors Exit From This Small-Cap Industrials Stock – ULBI

 

Ultralife Corporation

Ultralife Corporation (NASDAQ: ULBI) serves customers in the government and defense, security, energy, and industrial sectors with products and services ranging from power solutions to communications and electronics systems. The company creates, designs, installs and maintains rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems, custom-engineered systems.

Why should Investors make an Exit?

  • Deteriorating Fundaments: The company reported an 8.77% drop in total revenues to USD 98.27 million in FY21 (ended December 31, 2021) from USD 107.71 million in FY20. Additionally, the company further reported a loss of USD 0.23 million in FY21 from a profit of USD 5.33 million in FY20.
  • Supply Chain Challenges: During the fourth quarter ended December 31, 2021, the firm suffered supply chain issues related to the global pandemic, adversely affecting revenue and earnings.
  • Concentrated Customer Group: L3Harris Technologies and Thales Defense & Security, Inc., ULBI's top two clients, accounted for 17% and 6% of total revenue, respectively, in FY20. As a result, the company's financial success may be jeopardized if any of these crucial customers leave.
  • Growing skepticism about the global financial market: The market is concerned that the Federal Reserve (FED) would raise interest rates considerably this year. Investors eagerly anticipate the Federal Reserve's upcoming policy meeting to learn more about the Fed's efforts to combat inflation. Investors are concerned about rising interest rates increasing borrowing costs, affecting the global economic outlook and firm earnings predictions.

Valuation Methodology: EV/Sales 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.

Stock Recommendation:

ULBI's share price has remained on a bearish trend, fallen 40.29% in the past nine months and is currently leaning close to the lower end of its 52-week range of USD 4.24 to USD 11.78. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 4.90.

Considering the significant deterioration in fundamentals, logistics concerns, current valuation, and other technical indicators, we recommend a "Sell" rating on the stock at the closing price of USD 5.41, as of March 09, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing.

Three-Year Technical Price Chart (as of March 09, 2022). Source: REFINITIV, Analysis by Kalkine Group 

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

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