Growing Tailwinds Drive RF Industries Record Backlog
We think RF Industries (NASDAQ: RFIL) is a micro-cap that should be on your watchlist if not in your portfolio. The company is a specialist in interconnect products and its business is supported by multiple tailwinds. The company's products run the gamut from distributed antenna systems to wireless, coaxial, fiber optic, networking infrastructure, and land-based radio. The company's clients include telecommunications carriers, mobile providers, cable operators, businesses, and industries of all varieties. When it comes to the company's positioning and the outlook for the future it is supported by the growing use of mobile, the internet, 5G, IoT, and plans for infrastructure spending.
RF Industries Rebound Is Accelerating
RF Industries was not immune to the pandemic, its revenue fell nearly 40% in the second quarter of last year but the rebound has been gaining momentum in the time since. The second quarter of 2021 saw net sales increase 11% sequentially and 6.4% from last year to hit $11.06 million. Sales gains are being driven by a recovery in the wireless carrier segment as well as normalization within the OEM manufacturing industry. The only bad news is that revenue remains depressed on a two-year basis but we see that situation changing quickly. The company's backlog increased 46% sequentially to $22.8 million which is more than enough to ensure accelerating Revenue growth over the next couple of quarters.
Moving down the report, the results are equally good but there is a caveat. The gross profit margin of 43% includes the positive impact of an employee retention credit and a forgiven PPP loan. Excluding those impacts, the gross profit margin increased 100 basis points on a sequential basis and 200 basis points from last year to 27%. The adjusted EBITDA, which excludes the impact of the ERC and the PPP, came in at $355,000 reversing a loss in the prior year’s period and putting the company on track for YOY growth.
" ... We are also starting to see signs of recovery in the wireless carrier ecosystem spend, as reflected in the sizeable orders we have recently received for our Optiflex hybrid fiber solution that brought our current backlog to the highest level in the Company's history. We expect the carrier market spend to continue to recover and grow, and we see increasing opportunities to expand further into this market with our complete product offering … Looking ahead, we expect to achieve sequential sales growth in the current fiscal third quarter, and continue to expect a return to year-over-year revenue growth this year,” commented Robert Dawson, President, and CEO of RF Industries.
The Analyst Likes RF Industries
When we say the analyst likes RF Industries we do mean the one single analyst that's covering the stock. That said, the analyst at B. Riley issued their statement earlier this month maintaining a buy rating on the stock and raising the price target to $9. That represents a 12.5% upside and we think that this could be just the beginning. RF Industries is well-positioned in several growth markets and should continue to see revenue improvements in tandem with economic growth over the next five to 10 years.
Shares of RF Industries hit a multi-year low in the wake of the pandemic but appear to be in a full reversal now. The Q2 report sparked a double-digit move in price action during the pre-market session and has the stock on track to extend a rally that began earlier this year. We think this stock could reach $10 within the next several weeks and possibly move up to retest the all-time high by the end of the year.
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