Orion Energy Systems, Inc.

OESX Details

Orion Energy Systems, Inc. (NASDAQ: OESX) provides cutting-edge LED lighting systems, IoT-enabled control solutions, project engineering, design energy project management, and maintenance services. Even though it sells and deploys goods in various areas, its products are primarily targeted at three market segments: commercial office and retail, area lighting, and industrial applications. North America accounts for about all of the company's sales.

Latest News:

• Alterations in the Executive Compensation Plans: On February 22, 2022, OESX announced that after careful deliberation, the Compensation Committee of its Board of Directors has decided to make some investor-friendly adjustments to its executive compensation programs. In addition, Orion's Compensation Committee has chosen to alter the structure of the company's annual issue of restricted stock awards to executives, which occurs immediately after the company reports its fiscal year-end financial results. Instead of granting restricted stock that vests purely on continuous employment over three years, this fiscal year's awards will be split between those that vest over time and those that vest based on three-year performance requirements.

Q3FY22 Results:

• Decline in Topline: OESX reported a 30.59% decrease in total revenues to USD 30.71 million in Q3FY22 (ended December 31, 2021) from USD 44.25 million in Q3FY21, attributable 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.

• Contraction of Bottomline: 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: One customer accounted for 44.4% of accounts receivable on December 31, 2021. Three clients contributed 33.9%, 16.4%, and 10.1% of accounts receivable, respectively, as of March 31, 2021. As a result, losing any of its key customers could harm its financials.

Outlook:

• FY22 Estimates: As of February 09, 2022, OESX expects to generate 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 37.50% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 2.80 to USD 9.29. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 3.56.

Considering the significant correction in the stock price in the past six months, strong balance sheet, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 2.85, down 1.38% as of February 23, 2022.

Three-Year Price Chart (as on February 23, 2022). 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.