Orion Energy Systems, Inc.

OESX Details

Orion Energy Systems, Inc. (NASDAQ: OESX) offers cutting-edge LED lighting systems, Internet-of-Things-enabled control solutions, project engineering, design energy project management, and maintenance services. Although it sells and deploys goods in various markets, its products are primarily aimed at commercial office and retail, area lighting, and industrial applications. The majority of the company's sales are made in North America.

Latest News:

• Revisions to Executive Compensation Plans: On February 22, 2022, OESX announced that the Compensation Committee of its Board of Directors had decided to make some investor-friendly changes to its executive compensation programs after careful consideration. Furthermore, Orion's Compensation Committee has decided to change the structure of the company's annual issue of restricted stock awards to executives, which takes place immediately after the company reports its fiscal year-end financial results. This fiscal year's awards will be split between those that vest over time and those that vest based on three-year performance requirements, rather than granting restricted stock that confers solely on continuous employment over three years.

Q3FY22 Results:

• Decline in Topline: OESX reported a YoY decline of 30.59% in total revenues to USD 30.71 million in Q3FY22 (ended December 31, 2021) from USD 44.25 million in Q3FY21, owing to a reduction in project activity, primarily connected to its largest customer, and the impact of customer delays on several significant LED lighting and controls projects in the current period.

• Reduction in Profitability: OESX witnessed a decrease in net income to USD 1.10 million in Q3FY22 from USD 4.32 million in Q3FY21.
• Strong Balance Sheet: The company's cash and cash equivalents were USD 17.26 million as of December 31, 2021, with total debt of USD 0.04 million.

Key Risk:

• Customer Concentration Risk: On December 31, 2021, one customer accounted for 44.4% of accounts receivable. As of March 31, 2021, three clients contributed 33.9%, 16.4%, and 10.1% of accounts receivable, respectively. As a result, the loss of any of its key customers could harm its bottom line.

Outlook:

• FY22 Estimates: As of February 09, 2022, OESX expects to clock revenue of USD 130 million in FY22, thus representing YoY growth of 11%.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

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

 Stock Recommendation:

OESX's stock price has fallen 46.91% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 2.74 to USD 8.23. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 3.67.

Considering the significant correction in the stock price in the past nine months, strong balance sheet, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 3.01, up 1.35% as of March 22, 2022, at 06:48 AM PDT.

Three-Year Technical Price Chart (as on March 22, 2022, at 06:48 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.