Orion Energy Systems, Inc.

OESX Details

Orion Energy Systems, Inc. (NASDAQ: OESX) is engaged in developing, manufacturing, and distributing lighting and energy management systems (EMS) to commercial and industrial enterprises and federal and municipal governments in North America. Its operating segments are 1) Orion Engineered Systems (OES), which manufactures and markets lighting products and provides construction and engineering services for commercial lighting and EMS, 2) Orion Distribution Services (ODS), which distributes lighting equipment via manufacturer representative agencies and a network of electrical suppliers and contractors throughout North America, and 3) Orion US Markets Division (USM), marketing commercial lighting and EMS to wholesalers and energy service businesses (ESCOs). As of September 29, 2021, the company's market capitalization stood at USD 123.54 million.

Q1FY22 Results: The company reported a YoY surge of 224.68% in total revenues to USD 35.10 million in Q1FY22 (ended June 30, 2021) from USD 10.81 million in Q1FY21. Product revenue, which accounted for 80.47% of the total revenue in Q1FY22, reported a sharp uptick of 1.91x, whereas the Service revenue grew 5.18x YoY. OESX reported a net income of USD 2.51 million in Q1FY22 vs. a net loss of USD 2.22 million in Q1FY21. As of June 30, 2021, its cash and cash equivalents were USD 15.86 million, with a total debt of USD 0.05 million.

Key Financial Metrics (Source: Investor Presentation, August 23, 2021)

Key Risks: In Q1FY22, OESX's top two customers represented 50.9% and 14.2% of its total revenue. As a result, the loss of any of these key customers could harm its financial performance. Furthermore, OESX's major supplier accounted for 12.8% of the overall cost of revenue in Q1FY22, and any failure on the contractual obligation by this supplier could impact the company's operations.

Outlook: As of Q1FY22, OESX expects to clock revenue in the range of USD 150 – 155 million in FY22 (ending March 31, 2022), representing a YoY growth of at least 28%. Customers in logistics, global online and national retailers, government, healthcare, academic institutions, automobiles, and the company's growing maintenance services segments contribute to this optimistic outlook.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

OESX Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: OESX's share price declined by 60.51% in the past nine months and is currently leaning towards the lower end of the 52-week range of USD 3.65 to USD 11.98. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 35.28. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 4.92. Considering the current trading levels, improvement in profitability, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 3.91, down 1.88% as of September 29, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.