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Eltek Ltd. (ELTK) announced Q3 2019 financials that saw the company significantly improve over last year's results and profits achieved earlier in the year:
ELTK saw an operating profit of $568,000 in Q3, accounting for over half of the operating profit so far this year. This led to a $0.09 EPS for the quarter. Notice that this is a true EPS without any adjustments like what took place earlier in the year.
Net cash flow from operations was also strong for Q3, attaining $1.4 million on the quarter, slightly over half of the $2.7 million for the year. Positive cash flow from operations reduces the need for future financings as the company can grow internally from its own cash generation and no longer needs to dilute to pay the bills. A profitable, cash-generating company like ELTK can also refinance debt at favorable terms.
ELTK actually dropped 13% on Wednesday to $3.96 as some people think the company is going to dilute based on past shelf offerings. We think that this threat is far overestimated based on these financials, offering investors a chance to get in at a very cheap valuation.
ELTK achieved an EBITDA of just under $1 million for Q3 and $3 million for the first nine months of the year:
The company is on pace to hit $4 million in EBITDA on the year. At $3.96, tt currently has a market cap of $17 million and enterprise value of $23 million. Its EV/EBITDA multiple is less than 6. We believe that it should be trading at a minimum of a 10 EBITDA multiple, which would lead to a $40 million enterprise value and $34 million market cap. A fair price for ELTK is about $8 per share, or 100% upside from where it closed on Wednesday.
ELTK has nearly 4.4 million shares outstanding but only has a 1.3 million float. The stock has traded with frequent spikes in the past. Most notably, it spiked to $11.56 on May 30, a day after it ran right after releasing Q1 results which first showed profits. That period of time showed high volatility for the next several days so a 13% decline today means nothing in terms of momentum but represents a buying opportunity based on fundamentals. It can turn around at any time. These Q3 results demonstrate that Q1 results were not a fluke. ELTK is consistently profitable and cash flow positive now. This is a rare gem in the microcap small float world. A stock that can be highly volatile but not at risk of endless dilution and actually supports a higher price based on fundamentals and not just speculation or technicals.
Disclosure: We are long ELTK
Eltek Ltd. (ELTK) announced Q3 2019 financials that saw the company significantly improve over last year's results and profits achieved earlier in the year:
Highlights of the Third Quarter of 2019 compared to the Third Quarter of 2018
- Revenues for the third quarter of 2019 were $9.3 million compared to revenues of $8.5 million in the third quarter of 2018;
- Gross profit increased from $973,000 (11.4% of revenues) in the third quarter of 2018 to $1.8 million (19.1% of revenues) in the third quarter of 2019;
- Operating profit was $568,000 this quarter as compared to an operating loss of $307,000 in the third quarter of 2018;
- Net profit was $391,000, or $0.09 per fully diluted share in the third quarter of 2019 compared to a net loss of $463,000, or ($0.23) per fully diluted share, in the third quarter of 2018;
- EBITDA was $940,000 in the third quarter of 2019 compared to EBITDA of $109,000 in the third quarter of 2018;
- Net cash provided by operating activities amounted to $1.4 million in the third quarter of 2019 compared to net cash provided by operating activities of $164,000 in the third quarter of 2018.
ELTK saw an operating profit of $568,000 in Q3, accounting for over half of the operating profit so far this year. This led to a $0.09 EPS for the quarter. Notice that this is a true EPS without any adjustments like what took place earlier in the year.
Net cash flow from operations was also strong for Q3, attaining $1.4 million on the quarter, slightly over half of the $2.7 million for the year. Positive cash flow from operations reduces the need for future financings as the company can grow internally from its own cash generation and no longer needs to dilute to pay the bills. A profitable, cash-generating company like ELTK can also refinance debt at favorable terms.
ELTK actually dropped 13% on Wednesday to $3.96 as some people think the company is going to dilute based on past shelf offerings. We think that this threat is far overestimated based on these financials, offering investors a chance to get in at a very cheap valuation.
ELTK achieved an EBITDA of just under $1 million for Q3 and $3 million for the first nine months of the year:
The company is on pace to hit $4 million in EBITDA on the year. At $3.96, tt currently has a market cap of $17 million and enterprise value of $23 million. Its EV/EBITDA multiple is less than 6. We believe that it should be trading at a minimum of a 10 EBITDA multiple, which would lead to a $40 million enterprise value and $34 million market cap. A fair price for ELTK is about $8 per share, or 100% upside from where it closed on Wednesday.
ELTK has nearly 4.4 million shares outstanding but only has a 1.3 million float. The stock has traded with frequent spikes in the past. Most notably, it spiked to $11.56 on May 30, a day after it ran right after releasing Q1 results which first showed profits. That period of time showed high volatility for the next several days so a 13% decline today means nothing in terms of momentum but represents a buying opportunity based on fundamentals. It can turn around at any time. These Q3 results demonstrate that Q1 results were not a fluke. ELTK is consistently profitable and cash flow positive now. This is a rare gem in the microcap small float world. A stock that can be highly volatile but not at risk of endless dilution and actually supports a higher price based on fundamentals and not just speculation or technicals.
Disclosure: We are long ELTK
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