Byrna has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 16.7% to $22.02 per share while the index has gained 16.2%.
Is there a buying opportunity in Byrna, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Byrna Not Exciting?
We don't have much confidence in Byrna. Here are three reasons why BYRN doesn't excite us and a stock we'd rather own.
1. Operating Losses Sound the Alarms
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Although Byrna was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 3% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.
2. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Byrna’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 7.2%, meaning it lit $7.25 of cash on fire for every $100 in revenue.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Byrna burned through $8.61 million of cash over the last year. With $12.99 million of cash on its balance sheet, the company has around 18 months of runway left (assuming its $2.59 million of debt isn’t due right away).
Unless the Byrna’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Byrna until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
Byrna’s business quality ultimately falls short of our standards. That said, the stock currently trades at 50.2× forward EV-to-EBITDA (or $22.02 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. Let us point you toward the Amazon and PayPal of Latin America.
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