Coda Octopus: Next-Gen Products Driving Earnings Momentum

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We past covered Coda Octopus Group (NASDAQ:CODA) mode backmost successful 2019 highlighting this profitable and fundamentally coagulated micro-cap arsenic a niche manufacture leader. The institution specializes successful sonar imaging exertion with assorted applications crossed the subject and defense, energy, mining, and offshore operation industry.

The banal hasn't done overmuch since our article, with shares astir level from pre-pandemic levels beyond a plaything of volatility past year. That being said, our update contiguous recaps immoderate caller developments including a affirmative net inclination with climbing margins which is peculiarly awesome amid the challenging macro backdrop.

Indeed, the banal has gained momentum successful caller months based connected immoderate optimism that next-gen products and ongoing maturation initiatives volition assistance the institution further consolidate its marketplace share. In our view, CODA whitethorn beryllium inactive undervalued with the marketplace inactive considering CODA arsenic an "industrial" subordinate portion its high-tech solutions merit a higher premium.

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CODA Key Metrics

The institution past reported its Q3 results backmost successful January with EPS of $0.16, up from $0.14 successful the play past year. Revenue of $6.3 million, climbed by 8% year-over-year, with absorption uncovering occurrence successful its "Echoscope" and "Diver Augmented Vision Display" strategy products.

Another dynamic present is the company's "Services" segment, representing astir one-third of the business, wherever income climbed by an adjacent stronger 14.2%. The top-line momentum coupled with an effort astatine outgo controls and logistical efficiencies helped the operating margin scope 32.3%.

CODA ended the past 4th with $21.3 cardinal successful currency against a marginal $100k successful semipermanent debt. The equilibrium expanse presumption is simply a beardown constituent successful the company's concern illustration successful our opinion.

source: institution IR

With the yet-to-be-reported Q4 results, the institution is guiding for 2022 full-year gross of $17.1 million, up from 5% successful 2021 connected a comparable basis. Keep successful caput that the full-year 2021 net included a one-time payment from the national stimulus that twelvemonth which has skewed the fiscal results portion the institution is not reconciling the adjusted results.

Nevertheless, the takeaway is that underlying profitability is trending successful the close direction. Comments by absorption person projected optimism for stronger maturation going forward.

Some of the catalysts for the institution see a propulsion by the U.S. Navy and Department of Defense contractors to integrate much integer and augmented world solutions. With the Echoscope PIPE Sonars, the large advancement has been "5D and 6D imaging" with onboard processing. The institution believes determination is simply a important accidental successful real-time volumetric imaging compared to bequest solutions that are often 2D images with nary extent oregon mapping.

The selling constituent becomes the worth proposition to customers that tin run faster and much efficiently. In the segments similar offshore construction, completing a occupation successful less days oregon weeks tin construe into millions of dollars successful savings arsenic a affirmative for task ROIs.

source: institution IR

CODA Stock Price Forecast

With a azygous published Wall Street net estimation for CODA projecting 2023 EPS of $0.55, the banal is trading astatine a guardant P/E of astir 13x. Annualizing the Q3 results tin alternatively get astatine a $0.64 full-year net estimate, improving the P/E aggregate person to 11x. Our presumption is that these multiples are compelling considering the operation of dependable growth, recurring profitability, underlying affirmative escaped currency flow, zero debt, and the company's presumption wrong a unsocial marketplace segment.

The attraction present is that CODA has a comparative diversification to assorted end-customer sectors portion transforming into a robotics tech institution by pushing the boundaries of R&D from specialized equipment. All that is to say, shares merit a higher premium arsenic portion of the bullish lawsuit for the stock.

From the chart, we're looking astatine shares approaching a breakout supra $7.50 which has represented an important method level going backmost to 2020. The mentation present is that the marketplace recognizes the company's spot which is adding to the momentum.

There is simply a lawsuit to beryllium made that the outlook and fundamentals are stronger present than wherever the institution was successful 2021 meaning the rhythm precocious astir $10.00 could beryllium backmost connected the array arsenic an upward terms target. Our terms people implies a marketplace headdress approaching $100 cardinal arsenic a milestone benchmark.

Seeking Alpha

The adjacent measurement volition beryllium to travel the upcoming Q4 net report, apt to beryllium released successful precocious January oregon aboriginal February, though a day has not yet been confirmed. Updates from absorption regarding the existent operating situation volition beryllium cardinal on with margins and currency travel trends arsenic monitoring points. Continued execution should beryllium affirmative for the stock.

In presumption of risks, a interruption successful the banal moving nether $6.00 arsenic a level of enactment would apt bespeak a deteriorating of sentiment, signaling a weaker outlook. We mentioned the company's diversified exposure. The lipid & state manufacture is important for CODA with planetary majors arsenic existent customers. Sharply little vigor prices could interaction request for the concern rhythm and CODA equipment. Similarly, the institution remains connected to planetary macro trends. A script of a deepening recession worldwide would apt interaction income trends and propulsion shares lower.

Editor's Note: This nonfiction covers 1 oregon much microcap stocks. Please beryllium alert of the risks associated with these stocks.

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