Perceptron Stock Could Reward Investors With a 50% Gain

Spread the love
Why Perceptron Stock Can Reward Investors With a 50% Gain
iStock.com/Ivan-balvan

Perceptron Is Playing the Future of Manufacturing

Following a dismal performance by small-cap stocks in 2018, we are seeing some early buying in the new year with the Russell 2000 up 6.6% as of January 9.

There’s no guarantee that the rally will continue, especially at its current rate, but—given the oversold selling capitulation in 2018—there are aggressive opportunities.

An intriguing micro-cap technology growth stock with a great risk-to-reward situation is Perceptron, Inc. (NASDAQ:PRCP). It’s down 31% from its 52-week high but up 17% over the past month.

My bullish case for Perceptron stock is driven by its technology solutions that help manufacturers improve quality and efficiencies at the manufacturing stage.

Advertisement

The company provides advanced 3D automated industrial solutions, including robot guidance, measuring machines, laser scanning, and analysis software.

You can imagine the demand for these services as manufacturers look for ways to deliver more cost-effective products.

Perceptron’s clients are found worldwide in sectors such as automotive, aerospace, appliances, heavy machinery, agriculture equipment, and defense.

The PRCP stock chart shows a breakdown from the sideways channel around $9.00, which was accompanied by a bearish death cross pattern in January 2018.

Chart courtesy of StockCharts.com

Perceptron stock has been rallying since December 2018, when it declined below $7.00—and it still appears to have momentum.

The rally in PRCP stock is supported by rising relative strength and upward-trending moving average convergence/divergence.

If the broader market rallies, we could easily see Perceptron stock retake $12.00.

My Bull Case for Perceptron Stock 

The failure of Perceptron stock to move higher in a sustainable manner has been due to inconsistent revenue and earnings. For example, the company’s revenue increased in three of the past five fiscal years.

Fiscal Year

Revenue (Millions)    Growth
2014 $59.6

-2.09%

2015

$74.4 24.8%
2016 $69.1

-7.1%

2017

$78.0 12.8%
2018 $84.7

8.7%

(Source: “Perceptron Inc.,” MarketWatch, last accessed January 10, 2019.)

Perceptron is estimated to continue growing its revenue, but at a lower rate. For fiscal-year 2019, revenue is expected to increase by a modest 4.5% to $88.5 million, followed by 5.3% to $93.1 million in fiscal-year 2020. (Source: “Perceptron, Inc. (PRCP),” Yahoo! Finance, last accessed January 10, 2019.)

In four of the past five fiscal years, the company has achieved positive earnings before interest, taxes, depreciation, and amortization (EBITDA).

Fiscal Year

EBITDA (Millions)    Growth

2014

$3.7

-51.26%

2015

$2.7

-27.5%

2016

-$4.9 -284.9%
2017 $5.8

217.7%

2018

$7.8

35.2%

(Source: MarketWatch, op cit.)

Perceptron delivered generally accepted accounting principles (GAAP) diluted earnings of $0.39 per share in fiscal-year 2018 after three straight years of losses.

Fiscal Year

GAAP Diluted Earnings Per Share

2014

$0.26
2015

-$0.05

2016

-$2.36
2017

-$0.02

2018

$0.39

(Source: Ibid.)

On an adjusted basis, Perceptron is estimated to earn $0.56 per diluted share in fiscal-year 2019 and $0.66 per diluted share in fiscal-year 2020. (Source: Yahoo! Finance, op cit.)

Furthermore, the company maintains a healthy balance sheet, with $6.0 million in cash and minimal debt. (Source: MarketWatch, op cit.)

Perceptron’s free cash flow turned positive in fiscal-year 2018 after three straight years of negative results.

Fiscal Year

Free Cash Flow (Millions)

2014

$4.4
2015

-$6.7

2016

-$7.1
2017

-$4.4

2018

$3.1

(Source: Ibid.)

For those who care about insider buying, Perceptron stock saw insiders buy 34,234 common shares over seven transactions during the past six months. (Source: Yahoo! Finance, op cit.)

Analyst Take

Perceptron’s growth estimates give me some cautious optimism. PRCP stock is expected to ramp up its five-year compound annual growth rate for earnings to 30%, versus -17.4% for the past five years.

Perceptron stock trades at a reasonable 12.8 times its estimated fiscal-year 2020 earnings per share, and it has a cheap price/earnings to growth ratio of 0.4.

Check out the original article here.
Author: George Leong, B.Comm.

Related Articles