by Debra Fiakas CFA
On Monday Orion Energy Systems (OESX: NYSE) issued a press release to reiterate previous guidance for sales in the quarter ending March 2015. Given that the quarter has already ended, it is more like a pre-announcement of results than guidance. At any rate management has indicated the results, when finally reported will bring sales for the fiscal year ending March 2015, to some point in a range of $72 million to $74 million.
The announcement might not be so much motivated by a need to assure shareholders of financial performance, as much as it created another opportunity to drill home points about the company’s evolving business model. Orion Energy Systems used to be described as a power technology company. Today management skips all the high brow language about technology and points directly to the only technology it has been able to turn into a product. So now management is describing Orion as a “producer of energy-efficient LED lighting for residential and commercial applications.”
The press release might have been regarded as a bit redundant given that Orion management has had plenty of opportunities to give its pitch to investors during the company’s recent road show. In late February 2015, Orion raised $19.1 million by selling 5.5 million shares of its common stock at $3.50 per share.
It is relatively easy to undertake due diligence on Orion and its market opportunity . Test out a few LED lights on your own. Most hardware stores have a selection on display. Statistica offers a few details on the market for LED lights, suggesting LED now accounts for a 53% share. Manufacturing efficiency is expected to lead to selling price reductions, helping to drive market share to over 60% within the next five years.
Orion Energy Systems is operating in a strong market, but its stock has gone through a period of trading weakness beginning right about the time management began that road show period. The stock was left looking quite oversold until the offering closed. Indeed, while management was out pounding the pavement with its efficient-lighting story, the stock registered a particularly bearish formation in a point and figure chart called a ‘double bottom breakdown.’ Yes, that technical indicator is just as scary as it sounds and this one suggested the stock had developed such a negative momentum it could drop to zero.
Now it appears OESX has begun a recovery. Still it is possible to buy a growing company at a compelling price – even more compelling than the price paid by an entire group of investors who heard the company’s ‘lighting’ pitch first hand.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.