Thursday, 14 May 2020

Strong Last Minute Buying On SIFCO Bodes Well For Tomorrow

Yesterday we issued an alert on SIFCO Industries, Inc. (SIF). After the stock spent most of the day down, it raced to end the day at its high of $4.50, up 9%. This bullish activity bodes very well for tomorrow which is enhanced by its strong financial performance of $0.57 EPS in Q2 and thinly traded nature which means it can gap up quickly like with what we saw in the last few minutes on Thursday:



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SIF rose 88% to $4.14 on Wednesday on 17.5 million volume (it normally trades just a few thousand shares a day) on absolutely outstanding financial results for its Q2. That 88% move doesn't nearly justify the value and we think the stock can hit the $20 range with continued strong financial performance.

SIF is in the aerospace industry but the majority of its revenue and growth has been in its military division so it won't be impacted by COVID like the commercial aerospace industry would. Backlog has increased to $107 million as of March 31, 2020, a 14% increase from backlog of $94 million as of March 31, 2019. So we can expect the growth to continue despite the pandemic.

This is a highlight of the results:

Second Quarter Results
  • Net sales in the second quarter of fiscal 2020 increased 11.5% to $30.5 million, compared with $27.4 million for the same period in fiscal 2019.
  • Net income for the second quarter of fiscal 2020 was $3.3 million, or $0.57 per diluted share, compared with net loss of $1.3 million, or $(0.23) per diluted share, in the second quarter of fiscal 2019.
  • EBITDA was $5.4 million in the second quarter of fiscal 2020 compared with $1.0 million in the second quarter of fiscal 2019.
  • Adjusted EBITDA in the second quarter of fiscal 2020 was $4.5 million compared with Adjusted EBITDA being break-even at the second quarter of fiscal 2019.
Year to Date Results
  • Net sales in the first six months of fiscal 2020 increased 0.5% to $56.7 million, compared with $56.5 million for the same period in fiscal 2019.
  • Net income in the first six months of fiscal 2020 was $1.9 million, or $0.33 per diluted share, compared with net loss of $2.5 million, or $(0.46) per diluted share in the first six months of fiscal 2019.
  • EBITDA was $6.0 million in the first six months of fiscal 2020 compared with EBITDA of $1.4 million in the first six months of fiscal 2019.
  • Adjusted EBITDA in the first six months of fiscal 2020 was $5.2 million compared with Adjusted EBITDA of $0.3 million in the first six months of fiscal 2019.
Net income, EBITDA and Adjusted EBITDA results for the second quarter and six months ended March 31, 2020 include higher margins from productivity improvements as well as insurance recoveries at the location where the fire occurred.
The income statement summarizes these financial results: 


The solid 11.5% in revenue growth was coupled with a vast improvement in gross margin from 8% to 21%. This was due to an increase in productivity . We think that this is a permanent change which will impact financials going forward. Q2 benefitted from a $1 million insurance payout for a fire, but even excluding this amount leads to a $2.3 million net income and $0.40 EPS. That would be a $1.60 EPS annualized over a year. Using a 12.5x multiple, that would justify a $20 stock price. That may not happen overnight as SIF needs a couple more quarters to show that it is definitely on the right track. But a stock price under $5 is a tremendous buying opportunity both in the short and long run.

SIF has a $27 million market cap compared to a book value of $39 million or $6.66 per share based on 5.86 million shares outstanding. It has a mere 2.4 million share float with insiders owning over 50% of the company. This tight float coupled with the excellent earnings and fundamental value makes SIF a prime candidate to continue its major run.
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Disclosure: We are long SIF


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Mastering Microcaps: Strategies, Trends, and Stock Selection (Bloomberg Professional Library)

The Little Black Book of Microcap Investing: Beat the Market with NASDAQ/AMEX Microcap Stocks, OTCBB Penny Stocks, and Pink Sheet Stocks

Microcap Magic: Why The Biggest Returns Are In Stocks You've Never Heard Of

How to Day Trade for a Living: A Beginner’s Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology

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A Beginner's Guide to Day Trading Online (2nd edition)

Stock Investing for Beginners: Marijuana Stocks


Here are some other good stock market resources. This includes technical analysis and day trading, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies:

The dividend stock report from dividendstocksonline.com

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