Some of the most exciting stock picks are companies that are undiscovered, but it is nearly impossible to find micro caps stocks that are profitable and undervalued.
One micro cap company with a strong track record that is undiscovered and undervalued is Cemtrex (NASDAQ:CETX). We believe that as this story continues to unfold investors can reasonably expect share price appreciation in the coming quarters.
- Cemtrex is profitable and has delivered 20 consecutive profitable quarters
- Accretive acquisitions in the last 6 months have added over $55M of revenue to the top line while maintaining the current capital structure
- Cemtrex operates a mature and diversified business that serves multiple industries and vertical markets
- Revenue is expected to top $100M over the next 12 months
- The current market cap is $29.21M and currently trades at less than 0.3x 12 forward revenue guidance
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Company: Cemtrex (NASDAQ: CETX)
Shares issued/outstanding: 8.54 million
Closing Price 6/2/2016: 2.25
Market capitalization: $29.21 million
Float: 3.3 million
2014 sales: $47.7m
2015 sales: $56.9m
2014 EPS: $0.39
2015 EPS: $0.42
Cemtrex Inc. is a world leading industrial and manufacturing solutions company. Cemtrex provides a broad mix of products and services for an array of industries in both foreign and domestic markets. The company manufactures custom circuit boards, emissions monitors, and environmental control and air filtration systems for the automotive, medical, refining, power, chemical and utilities industry, among others. Through their ROB Cemtrex division, they also provide contract electronic manufacturing services to original equipment manufacturers (OEM’s).
Cemtrex operates in two primary business segments, Electronics Manufacturing Services (EMS) and Industrial Products & Services (IPS). Through their EMS group Cemtrex generates revenue through a variety of product design and engineering, circuit board assembly, cable and wire harnessing, systems integration and testing, and their fully integrated ROB Cemtrex contract manufacturing service. Revenue from the IPS business line comes from the sale of monitoring and analysis equipment and services for greenhouse gases, and a variety of regulated pollutants including oil and gas. In the most recent annual report the company uses the term EPS for this segment, Environmental Products & Systems.
The company has employed an aggressive growth by acquisition strategy recently, having just announced its fourth acquisition in less than four years. The company has been built through acquisitions really, beginning in 2004 with its purchase of emissions monitoring assets from Ducon Technologies. Here is a quick timeline of Cemtrex’s acquisition history:
Cemtrex’s Acquisition History
December 2004: Purchased emissions monitoring assets from Ducon Technologies (325k shares)
April 2007: Acquired Griffin Filters, LLC ($2.75M)
October 2012: Acquired minority stake in Pluto Technologies
October 2013: Acquired ROB Group ($6M cost, acquired $20M annual revenue stream)
December 2015: Acquired Advanced Industrial Services ($7.5M cost, acquired $23M annual revenue stream)
June 2016: Acquired Periscope for cash and debt ($10M cost, acquired $30M+ annual revenue stream)
Last year’s acquisition of AIS was incredibly accretive for Cemtrex. It added $23M in annual revenue which was almost half of the $56M that Cemtrex had generated during 2015 (exclusive of AIS). Cemtrex purchased AIS for only $7.5M which was just 3x its $2.4M in annual EBITDA. The acquisition has been a homerun for CETX thus far with revenue growth of $5.7M or 80% in the IPS division during the most recently reported quarter.
Management also believes the acquisition of Periscope that was completed last week will be highly accretive. Based on management’s M&A track record I would give them the benefit of the doubt. The market sure seems to view the latest acquisition as a positive as shares of CETX are up roughly 50% since the June 2nd Press Release.
Here is a quick rundown of the Periscope deal and why we believe it is yet another home run acquisition for Cemtrex:
– Periscope is focused on electronic manufacturing services primarily for German automotive manufacturers
– Periscope has more than 35 years of industrial operating experience
– Cemtrex has experience in the region wtih ROB Cemtrex, a German based subsidiary
– Substantial synergies with existing EMS portfolio, complementary products & opportunity for cross-selling
– Will secure a broader base and larger market share in the Eurozone
– Cemtrex is now a leading EMS company in Germany, ranking among the top 15
– The European EMS market expected to grow at roughly 10% per annum from 2011 to 2017
– Not dilutive as no new shares were issued as part of the transaction
– Projected annual revenue of $25M over the next 12 months
Commenting on the acquisition, Cemtrex CEO, Saagar Govil stated that he anticipates “over $100 Million in total sales over the next twelve months.”
Over the past six months the company has effectively doubled its annual sales, adding roughly $25M to its book from each acquisition. Govil has received some recognition for the company’s recent success, being named to the Forbes 30 Under 30 as well as Business Insider’s Silicon Alley Top 100.
Despite only recently receiving any recognition, Govil has been an M&A superstar for years now. In 2013 he guided CETX through its acquisition of ROB Group which added $20M to the top-line for a bargain price of $5.6M. The deal had no dilutive effect on existing shareholders.
Since the company re-positioned itself back in 2010 Govil has lead CETX through 20 consecutive profitable quarters. Through a handful of savvy acquisitions, Govil has navigated CETX from just $13M in annual revenue in 2013 to a forecasted $100M over the next 12 months. The company is only covered by one analyst right now. Less than a year ago it was uplisted to the Nasdaq. A company can only double its sales so many times before the secret is out.
Why We Like Cemtrex (NASDAQ:CETX):
With a market capitalization of just $30 million, there is plenty of room for share price appreciation in 2016. Investors can expect Cemtrex to generate over $100 million in revenue over the next 12 months with potential to produce substantial earnings per share growth. We would not be surprised to see shares of CETX trade at over $6 per share over the next few quarters.
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