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small-cap

Time To Exit This NASDAQ-Listed Communication Equipment Stock – GILT

Apr 08, 2022 | Team Kalkine
Time To Exit This NASDAQ-Listed Communication Equipment Stock – GILT

 

Gilat Satellite Networks Ltd.

Gilat Satellite Networks Ltd. (NASDAQ: GILT) is a global leader in satellite-based broadband communications services. It designs and manufactures modern ground segment equipment with cutting-edge technology and offers complete solutions and end-to-end services. The company's products include a cloud-based VSAT network platform, high-speed modems, high-performance on-the-go antennas, high-efficiency, high-power Solid-State Amplifiers (SSPA), and Block Upconverters (BUC).

Why Should Investors Make An Exit?

  • High Cash Conversion Days: Compared to the industry, the company has a long Cash Conversion Cycle (Days), meaning that it takes more days to convert its sales to cash. As of FY21, its Cash Cycle was 142 days, compared to an industry median of 101 days.
  • Weak Margin Profile: In FY21, GILT’s reported operating margin was 1.2% vs. the industry median of 10.8% and reported net margin of -1.2% in the period under consideration which was lower than the 7.4% reported in the same period of the corresponding previous financial year.
  • Negative ROE: The company reported ROE of -1.2% vs. industry median of 7.1%.
  • Ownership Concentration Risk: FIMI Opportunity Funds owned approximately 26.4% of GILT's outstanding common shares as of FY20, with two additional significant shareholders owning 5.25% and 7.6%. This constrains the ability of other shareholders to influence the company's decisions.
  • Supplier Concentration Risk: The company relies on a few vendors for crucial components used in GILT's products, such as those required to develop hub systems and VSATs. As a result, if it cannot purchase essential elements at a reasonable price, its financial health may be jeopardised.

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:

SMED's share price has declined 21.19% in the past nine months and is currently leaning towards the lower band of the 52-week range of USD 6.58 to USD 11.20. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 7.22.

Considering the company's long cash conversion cycle, declining margins, current valuation and associated risks. we recommend a "Sell" rating on the stock at the current price of USD 8.21, down 2.72% as of April 08, 2022, at 10:46 AM PDT.          

Three-Year Technical Price Chart (as of April 08, 2022, at 10:46 AM PDT). 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.