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I was looking through the list of top % gainers, and on the list for the NASDAQ came across an old favorite of mine, Daktronics (DAKT) which was having a superb day in the market. As I write, Daktronics is trading at $33.31/share, up $6.64 or 24.90% on the day! I do not own any shares or options on this company.
I first wrote up Daktronics on Stock Picks Bob's Advice on November 19, 2003, almost exactly three years ago, when the stock was trading at $17.74. DAKT had a 2:1 stock split on June 23, 2006, making my effective pick price actually 1/2 of that or $8.87. With the stock now trading at $33.31, this represents a gain of $24.44 or 275.5% since the stock was selected on the blog!
Let's take a closer look at this stock and see if it still deserves a place here!
1. What exactly does this company do?
Reviewing the Yahoo "Profile" on Daktronics, we find that this company
"...through its subsidiaries, engages in the design, development, marketing, and support of visual display solutions for the sports, commercial, and transportation applications. Its products include sport products, such as indoor and outdoor scoreboards, timing systems, digit displays, sound systems, statistics software, and related products; video products consisting of displays comprising a number of pixels capable of creating various levels of video, graphics, and animation and controllers that manage the operation of the display; commercial products under galaxy product line, which include various indoor and outdoor applications for graphics and text-based displays; and transportation products containing a line of electronic displays and controllers marketed under the vanguard product line."
2. Was there any news to explain today's move higher?
Checking the news, it was clear that today's move was related to the announcement of 2nd quarter fiscal 20007 results. The company reported a gain in revenue of 63% for the quarter from $123.5 million in net sales compared to a sales figure of $75.8 million in the year-ago period. Net income came in at $8.9 million, up sharply from last year's $5.2 million, or on a per diluted share basis, this was an increase of over 60% to $.22/share from $.13/share last year. This exceeded analysts' expectations of $.15/share in earnings on revenue of $98.4 million. The company also raised expectations for the next quarter to $.12 to $.18/share on net sales of $103 to $115 million. Analysts had been expecting earnings of $.13/share on revenue of $92.6 million. As you may know, I call this earnings report a "trifecta-plus" meaning that the company did everything it could do with an earnings report: announced increased revenue, increased earnings, beat expectations, and raised guidance! What else could an investor who was looking for good results expect?
3. How about the latest quarter?
4. What about longer-term results?
Examining the Morningstar.com "5-Yr Restated" financials, we can see an almost perfect picture of a company. In other words, first of all, note the steadily increasing revenue as illustrated by the steady increase in the size of the purple bars on the graph. Earnings have been a tad erratic, steadily increasing from $.13/share in 2002 to $.45/share in 2004 only to slip back to $.39/share in 2005. Earnings resumed their rise with $.52/share in 2006 and $.53/share in the trailing twelve months (TTM).
Free cash flow has been positive and basically growing with $11 million reported in 2004, dropping to $9 million in 2005, only to increase to $13 million in 2006 and $16 million in the TTM.
The balance sheet is solid with $26.3 million in cash and $127.4 million in other current assets. This is plenty to cover both the $86.2 million in current liabilities and pay off the $7.2 million in long-term debt as well. The current ratio works out to a solid 1.78.
5. How about some valuation numbers on this stock?
Reviewing the Yahoo "Key Statistics" on DAKT, we find that this is a mid-cap stock with a market capitalization of $1.31 billion. The trailing p/e is certainly rich at 63.93 with a forward p/e (fye 29-Apr-08) of 38.95. However, the company is anticipated to grow so vigorously (5 yr expected0 that the PEG ratio turns out to be a reasonable 1.14.
Utilizing the Fidelity.com eresearch website, we find that Daktronics is in the "Industrial Electrical Equipment" group. Within this group, DAKT is the most expensive by the Price/Sales ratio measure with a ratio of 3.3. This is followed by Rockwell Automation (ROCK) at 2.1, Ametek (AME) at 1.9, Energizer (ENR) at 1.4, Regal-Beloit (RBC) at 1, and Eaton (ETN) at the bottom of the list with a ratio of 0.1. Certainly no bargain by this measure!
In terms of profitability, relative to the Return on Equity (ROE), DAKT also does not fare that well with Energizer at 74.5%, Rockwell at 36.9%, Eaton at 21.5%, Ametek at 19.6%, followed by Daktronics at 17.6% and Regal-Beloit at 15.5%.
Finishing up with Yahoo, there are 39.05 million shares of Daktronics outstanding with 30.96 million that float. Of those that float, 3.7 million shares were out short as of 10/10/06. This represents 10.5% of the float or a short ratio of 6.2. This last figure may well explain the sharp rise today on the back of terrific news. Not only are purchasers seeking to go "long" on this stock buying it up, but the short-sellers are likely scrambling to cover their shorted shares, scrambling to buy shares to close out their position.
Finally, the company does pay a small dividend with a forward annual rate of $.06/share yielding 0.2%. The last stock split, as I noted above, was a 2:1 stock split on June 23, 2006.
6. How about the chart?
Checking the Daktronics "Point & Figure" chart from StockCharts.com, we can see that the company, which was trading aroune $4.75/share in march, 2001, climbed to $8.50 in June, 2001, only to fall back to a low of $3.00 where it "double-bottomed", and then in February, 2002, started a sharp and steady ascent to the current $33 level. The stock chart looks quite strong for at least the last four years!
7. Summary: what do I think about this stock?
Let's take a brief look at a few of the things I discussed above. First of all the stock is having a terrific day moving up very strongly on good news. I suspect that the relatively large short-interest is helping fuel the ascent as shorts get squeezed and other investors pile in. The quarterly report announced was phenomenal as the company showed terrific growth, blew away estimates and raised guidance! Finally the Morningstar.com figures are also strong. On a negative, the company appears richly priced and cannot afford any mis-steps. This is not an unknown company; unlike the valuation when I first wrote it up in 2003. But the numbers are impressive, the graph is great, and if I were in the market to be buying shares, I probably would consider adding a stock like this! (If only I had loaded up on shares in 2003!)
Thanks again for stopping by! If you have any comments or questions, please feel free to leave them on the blog or email me at firstname.lastname@example.org. If you get a chance, be sure and visit my Stock Picks Podcast site, where I discuss many of the same stocks I write about on the blog.