Optex Systems Holdings Inc

Optex Systems Holdings, Inc. (NASDAQ: OPXS) is a manufacturer of optical sighting systems and assemblies, primarily for department of defense applications. Its products are installed on various types of United States military land vehicles, such as the Abrams and Bradley fighting vehicles, light armored and armored security vehicles and the Stryker family of vehicles, as well as light armored and armored security vehicles. Its segments are Optex Systems and Applied Optics Center.

Key Business & Financial Updates

• Backlog Overview: As of June 30, 2024, Optex Systems Holdings reported a backlog of USD 45.6 million, marking an increase of USD 3.8 million, or 9.1%, from the backlog of USD 41.8 million recorded on October 1, 2023. Additionally, the backlog increased by USD 4.0 million, or 9.6%, from the USD 41.6 million backlog as of July 2, 2023.
• Revenue Growth: For the quarter ended June 30, 2024, total revenues saw a significant increase of USD 1.9 million, or 26.3%, compared to the same period in the prior year. This growth was primarily driven by higher deliveries in the Optex Richardson segment (USD 1.6 million) and the Applied Optics Center segment (USD 0.3 million). Over the nine-month period ended June 30, 2024, revenues grew by USD 7.0 million, or 39.6%, driven by increased customer demand for military products across both operating segments. However, this was partially offset by reduced demand for commercial optical assemblies in the Applied Optics Center.
• Gross Profit and Operating Income: For the three months ended June 30, 2024, consolidated gross profit rose by USD 1.2 million, or 68.3%, while for the nine-month period, it increased by USD 3.1 million, or 78.8%. These increases were attributed to higher revenues spread over fixed manufacturing costs, coupled with improvements in product mix, pricing, and operational performance. Operating income also surged, rising by USD 0.9 million, or 114.8%, for the three-month period and by USD 2.4 million, or 224.4%, for the nine-month period, driven by higher revenues and increased gross margins across both segments.
• Financial Position: As of June 30, 2024, Optex Systems Holdings reported a working capital of USD 14.2 million, compared to USD 13.5 million as of October 1, 2023. During the nine-month period, the company generated USD 1.0 million in operating cash, spent USD 0.5 million on acquisitions of property and equipment, and invested USD 1.0 million in intellectual property. Inventory increased by USD 3.0 million to support new program awards and anticipated revenue growth over the next twelve months.
• Cash and New Orders: At the end of June 2024, Optex Systems had USD 0.5 million in cash and a USD 1.0 million outstanding balance against its line of credit. The company also had accounts receivable of USD 3.3 million. During the nine months ended June 30, 2024, the company secured new orders totaling USD 28.3 million, a 7.6% increase from the prior year period. These orders consisted of USD 18.5 million for the Optex Richardson segment and USD 9.8 million for the Applied Optics Center segment.
• Net Income and Adjusted EBITDA: Net income for the three months ended June 30, 2024, increased by USD 0.7 million to USD 1.3 million, compared to USD 0.6 million for the same period in 2023. Adjusted EBITDA rose by USD 0.9 million to USD 1.8 million over the same period. For the nine-month period, net income increased by USD 1.9 million to USD 2.8 million, while adjusted EBITDA grew by USD 2.7 million to USD 4.2 million. These improvements were driven by higher revenues and gross profits, offset only partially by increased general and administrative expenses.

Technical Observation (on the daily chart):

The Relative Strength Index (RSI) over a 14-day period stands at a value of 62.48, upward trending, with the expectations of continuation of upward momentum. Additionally, the stock's current positioning is above both 50-Day SMA and 200-Day SMA, which can act as a short to medium term support levels.

As per the above-mentioned price action, momentum in the stock over the last month, current macroeconomic scenarios, recent business & financial updates, and technical indicators analysis, a ‘Speculative Buy’ rating has been given to Optex Systems Holdings, Inc. (NASDAQ: OPXS) at the closing market price of USD 8.31 as of August 20, 2024.

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is August 20, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.s

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the New York Stock Exchange (NYSE), NASDAQ Capital Markets (NASDAQ), and or REFINITIV. Typically, all sources (NYSE, NASDAQ, or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.