Despite economic and geopolitical uncertainty, the industrial sector remained strong thanks to consistent demand. This demand was fuelled by factors such as population increase and infrastructural development. Also, technological and automation developments added to the industrial sector's resiliency.
While electric Vehicle (EV) charging company ChargePoint Holdings, Inc. (CHPT) missed its own revenue guidance in the last reported quarter due to near-term financial concerns and strict rules affecting its business, I think Ultralife Corporation (ULBI), Alpha Pro Tech, Ltd. (APT), and LSI Industries Inc. (LYTS) are better positioned to capitalize on the industry’s prospects.
CHPT’s shares have lost 66.6% over the past year to close the last trading session at $4.92. However, the stock is trading at a premium valuation, which its financials may fail to justify amid the economic headwinds. Its forward EV/Sales multiple of 2.97 is 80.3% higher than the 1.65 industry average. Also, its forward Price/Sales multiple of 2.83 is 111.3% higher than the industry average of 1.34.
CHPT reported disappointing second-quarter results. The company’s non-GAAP net loss increased by 40.7% from the prior year’s quarter to $87.01 million, while net loss per share stood at $0.35, up 25% year-over-year. So, it could be wise to avoid CHPT.
On the other hand, in August, industrial production increased by 0.4%, while manufacturing output increased by only 0.1%. Total industrial production in August was 103.5% of its 2017 baseline, up 0.2% from the previous year.
Moreover, the Industrial Machinery Market is expected to grow at a 6% CAGR until 2032. The rising demand for automation and cutting-edge equipment across industries is responsible for this expansion. The industrial machinery market is also expanding due to technical developments and the adoption of Industry 4.0 techniques.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Industrial - Equipment stocks, beginning with number 3.
Stock #3: Ultralife Corporation (ULBI)
ULBI and its subsidiaries design, manufacture, install and maintain power and communication and electronics systems worldwide. The company operates in two segments, Battery & Energy Products and Communications Systems.
ULBI’s forward EV/Sales of 1.13x is 31.1% lower than the 1.65x industry average. Its forward Price/Sales multiple of 1.01 is 24.5% lower than the industry average of 1.34x.
ULBI’s trailing-12-month asset turnover ratio of 0.85x is 5.1% higher than the 0.81x industry average.
For the second quarter, which ended June 30, 2023, ULBI’s total revenues amounted to $42.69 million increased 32.9% year-over-year, while its gross profit stood at $10.59 million, up 38.5% year-over-year.
In addition, its adjusted net income and EPS came in at $4.62 million and $0.29, representing increases of 756.8% and 866.7%, respectively, from the prior-year quarter. Also, the company’s adjusted EBITDA increased 181.1% year-over-year to $6.30 million.
The consensus revenue estimate of $153.10 million for the year ending December 2023 represents a 16.1% increase year-over-year. Its EPS is expected to grow significantly year-over-year to $0.45 for the same period. It surpassed EPS estimates in three of the four trailing quarters. ULBI’s shares have gained 146.8% over the past nine months to close the last trading session at $9.60.
ULBI’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ULBI has an A grade for Sentiment and a B grade for Value and Growth. Within the B-rated Industrial - Equipment industry, it is ranked #15 out of 92 stocks. Click here for the additional POWR Ratings for Stability, Momentum, and Quality for ULBI.
Stock #2: Alpha Pro Tech, Ltd. (APT)
Headquartered in Markham, Canada, APT together with its subsidiaries, develops, manufactures, and markets a range of disposable protective apparel, infection control, and building supply products in the United States and internationally. The company operates through two segments: Disposable Protective Apparel and Building Supply.
APT’s trailing-12-month EV/Sales multiple of 0.62 is 62.1% lower than the industry average of 1.64. Its trailing-12-month EV/EBIT multiple of 11.22 is 29.4% lower than the industry average of 15.90.
APT’s trailing-12-month asset turnover ratio of 0.86x is 5.9% higher than the 0.81x industry average.
In the fiscal second quarter ended June 30, 2023, APT’s gross profit increased 8.8% year-over-year to $6.11 million. Also, its net income and EPS came in at $1.15 million and $0.10, representing increases of 65.4% and 100%, respectively, from the prior-year quarter.
The stock has gained 3.8% over the past year to close the last trading session at $4.14.
It’s no surprise that APT has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Momentum and a B grade for Value and Quality. It is ranked #11 in the same industry.
Beyond what is stated above, we’ve also rated APT for Growth, Stability and Sentiment. Get all APT ratings here.
Stock #1: LSI Industries Inc. (LYTS)
LYTS produces and sells non-residential lighting and retail display solutions in the United States, Canada, Mexico, Australia, and Latin America. It operates in two segments: Lighting and Display Solutions.
LYTS’ forward EV/Sales multiple of 0.93 is 43.6% lower than the industry average of 1.65. Its forward EV/EBIT multiple of 11.34 is 24.4% lower than the industry average of 15.
LYTS’ trailing-12-month asset turnover ratio of 101.7% is 41.9% higher than the 0.81x industry average. Its trailing-12-month ROTA of 8.70% is 72.3% higher than the 5.05% industry average.
LYTS’ adjusted operating income increased 44.6% year-over-year to $11.73 million in the fourth quarter that ended June 30, 2023, while its adjusted EBITDA rose 33% from the year-ago value to $14.10 million.
Its adjusted net income grew 46.4% and 42.9% from the prior-year quarter to $8.80 million and $0.30 per share, respectively.
Street expects LYTS’ revenue to increase 4.4% year-over-year to $518.72 million for the year ending June 2024. Its EPS is expected to grow 15.2% year-over-year to $1.01 for the same period. It has surpassed EPS estimates in all the four trailing quarters. Over the past year the stock has gained 117.9% to close the last trading session at $15.69.
LYTS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked first in the same industry. It has an A grade for Value, Sentiment and Quality. To see additional LYTS’ ratings for Stability, Momentum and Growth, click here.
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LYTS shares were trading at $15.67 per share on Tuesday morning, down $0.02 (-0.13%). Year-to-date, LYTS has gained 29.45%, versus a 12.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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