One of the brightest Small-Cap Stars of the last month has been the San Diego-based LRAD Corporation (LRAD) . The company’s spiked almost 65% since the start of August following a particularly robust fiscal Q3 earnings report released after market close on August 7. The huge spike means that LRAD Corporation has currently more than doubled its market value since the start of 2014.
Sonic Technology is Booming
The LRAD Corporation’s primary focus is, wait for it, LRAD devices. Long range acoustic devices (LRADs) focus sonic energy and have a variety of different uses, but are most commonly deployed as acoustic hailing devices (AHDs) or sonic weapons.
The US Navy has required the use of AHDs on its ships ever since the attack on the USS Cole in 2000, an attack that could potentially have been prevented with an AHD. LRADs can be used as nonlethal weapons that are valuable in crowd suppression or fending off potential dangers prior to fully assessing their threat level.
However, the technology’s uses don’t stop there. LRADs are also used on college campuses to more effectively amplify announcements, on wind farms to protect birds from the fan arms, and for border and port security.
Q3 Earnings Report is Just What the Doctor Ordered
LRAD Corp. had been experiencing a sluggish year prior to the release of its fiscal Q3 report, with strong support at about $1.80 keeping shares from falling far, but with gains not straying far north of $2 apiece, either.
However, that changed radically on August 7. The company posted a 271% year-over-year gain in revenue, up $5.8 million from 2013’s $2.2 million to an $8 million figure that blew expectations out of the water. That drove the $3 million increase in net income, from a $1.1 million loss in the year-ago period to a $1.9 million, or $0.06 a share, profit.
"Increased product offerings, additional business development staff and support, and continued expansion of international markets offset domestic defense budget reductions, and led to nine-month revenue that exceeded revenue for the full fiscal year 2013," said President and CEO Tom Brown. "Our fiscal third quarter, in particular, was positively impacted by sales of our border security solution, the LRAD 2000X, which saw a $4.0 million shipment to a Middle Eastern country to assist in their border and perimeter security program."
The company also had plenty of good reasons to look forward to the future, including a $1.7 million order from Southeast Asia and the release of a new vehicle-mounted product. On the whole, it was a great quarter that appeared to be another step towards a great year.
“Our fourth quarter is off to a good start and we anticipate that we will end the year achieving one of our strongest financial performances in the Company's history from both a top and bottom line standpoint," said Brown.
Strong Support Level May Have Bolstered Gains
Once the opening bell sounded on August 8, the markets were ready to jump on LRAD Corp. Shares popped almost 15% on the first day, and the stock’s up more than 60 percent in total since that point. At the core of that gain is clearly the stock’s solid earnings, but it may also have been bolstered by the signs of stability coming from the stock’s chart.
Since the start of December last year, LRAD has appeared to have a firm floor for its shares at about $1.80 apiece. The stock’s flirted with falling below that level at times, but it repeatedly bounced back. On more than five occasions, LRAD tested that support level only to rebound. So, while money coming in is the primary concern, some traders may have been a bit more willing to invest given that the stock appeared to have some limits on its losses (barring a catastrophic piece of news).
The Small-Cap Stars system is built around identifying those metrics that small-cap companies have had in common in the past prior to those companies making big gains. And LRAD hit on several different cylinders. The company featured a number of appealing characteristics, including low levels of total debt, a high P/S ratio1, high levels of volatility in stock price, high non-cash WC, and low levels of depreciations.
On the whole, LRAD’s big gains this year are a sign that the company’s strong fundamentals are finally paying dividends.
1 So a high P/S ratio certainly doesn’t SEEM like a good sign, certainly not to anyone versed in value investing. However, oddly enough, it can be indicative of future success for a small-cap tech firm. The fact that investors are willing to pay a high premium for current sales would indicate that the market is anticipating big things for the company’s future.
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