As the U.S. is focusing on reducing its dependence on others for oil and gas, this has created significant opportunities within the U.S. for companies in the Oil & Gas Equipment & Services Industry. With the U.S. focusing on domestic oil and gas, the International Energy Agency (IEA) is forecasting the U.S. to become the world's largest oil producer by 2020. The above factors should give the oil and gas equipment industry a boost and one company situated in this sector with strong fundamentals is Bolt Technology Corporation (BOLT).
Bolt Technology manufactures and sells marine seismic data acquisition equipment and underwater robotic vehicles.
Even though Bolt Technology operates internationally, over the past three of years Bolt Technology has focused on increasing it's U.S. sales. Since 2010, Bolt Technology's sales in the U.S. have gone from $6.781 million to $16.930 million in 2012. In 2010 the U.S. market represented 21.54% of the company's sales while in 2012 the U.S. market represented to 32.18% of the company's overall sales. This equaled a $10.149 million dollar increase in sales from the U.S. market.
In the article below, I will look at Bolt Technology's past profitability, debt and capital, and operating efficiency. Based on this information, we will get to see the company's sales, returns, margins, liabilities, assets, returns and turnovers. As the article below is over the same three year time period as the information above, we will get to see the impact that the increased U.S. market has had on the Bolt Technology.
All numbers sourced from Company Webpage and Morningstar.
Profitability
Profitability is a class of financial metrics used to assess a business's ability to generate earnings compared with expenses and other relevant costs incurred during a specific period of time. In this section, we will look at four tests of profitability. They are: net Income, operating cash flow, return on assets, and quality of earnings. From these four metrics, we will establish if the company is making money, and gauge the quality of the reported profits.
• Net Income 2010 = $4.954 million.
• Net Income 2011 = $5.527 million.
• Net Income 2012 = $1.982 million.
Over the past three years Bolt Technology's net profits have decreased from $4.954 million in 2010 to $1.982 million in 2012. The earnings decrease was due to "the special charge on June 30, 2012 to reflect additional estimated contingent earnout payments related to the SeaBotix acquisition." The special charge was $4.500 million. Without the special charge, the company would have a net income of $6.482 million. This is an increase of 30.84% over 2010.
Operating cash flow is the cash generated from the operations of a company, generally defined as revenue less all operating expenses, but calculated through a series of adjustments to net income.
• Operating Cash Flow 2010 = $7.304 million.
• Operating Cash Flow 2011 = $7.975 million.
• Operating Cash Flow 2012 = $9.377 million. (before adjustment
of contingent earnout)
Over the past three years, the company's operating cash flow has increased based on the operating cash flow before the adjustment of contingent earnout. Bolt Technology's operating cash before the earnings adjustment has increased by 28.38%.
ROA - Return On Assets = Net Income/Total Assets
ROA is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's net income by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment."
Net income growth
• Net Income 2010 = $4.954 million.
• Net Income 2011 = $5.527 million.
• Net Income 2012 = $6.482 million. (before adjustment
of contingent earnout)
Total asset growth
• Total Assets 2010 = $74.821 million.
• Total Assets 2011 = $87.740 million.
• Total Assets 2012 = $82.714 million.
ROA - Return on assets
• Return On Assets 2010 = 6.62%.
• Return On Assets 2011 = 6.30%.
• Return On Assets 2012 = 7.84%.
Over the past three years, Bolt Technology's ROA has increased from 6.61% in 2010 to 7.84% in 2012. This indicates that the company is making more money on its assets than it did in 2010.
Quality Of Earnings
Quality of Earnings is the amount of earnings attributable to higher sales or lower costs rather than artificial profits created by accounting anomalies such as inflation of inventory. To ensure there are no artificial profits being processed, the operating cash flow must exceed the net income.
2010
• Operating Cash Flow 2010 = $7.304 million
• Net Income 2010 = $4.954 million.
2011
• Operating Cash Flow 2011 = $7.975 million.
• Net Income 2011 = $5.527 million.
2012
• Operating Cash Flow 2012 = $9.377 million. (before adjustment
of contingent earnout)
• Net Income 2012 = $6.482 million. (before adjustment
of contingent earnout)
Over the past three years, the operating cash flow has been higher than the net income. This indicates that the company is not artificially creating profits by accounting anomalies such as inflation of inventory.
Debt And Capital
The Debt and Capital section establishes if the company is sinking into debt or digging its way out. It will also determine if the company is growing organically or raising cash by selling off stock.
Total Liabilities To Total Assets, Or TL/A ratio
TL/A ratio is a metric used to measure a company's financial risk by determining how much of the company's assets have been financed by debt.
Total Assets
• Total Assets 2010 = $74.821 million.
• Total Assets 2011 = $87.740 million.
• Total Assets 2012 = $82.714 million.
• Equals and increase of $7.893 million
Total Liabilities
• Total Liabilities 2010 = $2.866 million.
• Total Liabilities 2011 = $10.375 million.
• Total Liabilities 2012 = $12.896 million.
• Equals and increase of $10.030 million
Over the past three years, Bolt Technology has acquired more total liabilities than total assets. This indicates that the company has been financing its assets through debt. Over the past three years, the company's total assets increased by $7.893 million, while the total liabilities increased by $10.030 million.
Working Capital
Working Capital is a general and quick measure of liquidity of a firm. It represents the margin of safety or cushion available to the creditors. It is an index of the firm's financial stability. It is also an index of technical solvency and an index of the strength of working capital.
Current Ratio = Current Assets/Current liabilities
Current Assets
• Current Assets 2010 = $58.668 million.
• Current Assets 2011 = $56.301 million.
• Current Assets 2012 = $52.470 million.
Current liabilities
• Current liabilities 2010 = $2.866 million.
• Current liabilities 2011 = $7.773 million.
• Current liabilities 2012 = $7.167 million.
• Current Ratio 2010 = 20.47.
• Current Ratio 2011 = 7.24.
• Current Ratio 2012 TTM = 7.32.
Over the past three years, Bolt Technology's current ratio has decreased. Even though the current ratio decreased compared to 2010 the latest number of 7.32 is very high thus indicating that the company would be able to pay off its obligations if they came due at this point.
Common Shares Outstanding
• 2010 Shares Outstanding = 9 million.
• 2011 Shares Outstanding = 9 million.
• 2012 Current Shares Outstanding = 9 million.
Over the past three years, the number of company shares have remained relatively the same. As the shares have remained the same this indicates that the company is not issuing shares to raise capital.
Operating Efficiency
Operating Efficiency is a market condition that exists when participants can execute transactions and receive services at a price that equates fairly to the actual costs required to provide them. An operationally efficient market allows investors to make transactions that move the market further toward the overall goal of prudent capital allocation without being chiseled down by excessive frictional costs, which would reduce the risk/reward profile of the transaction.
Gross Margin: Gross Income/Sales
The gross profit margin is a measurement of a company's manufacturing and distribution efficiency during the production process. The gross profit tells an investor the percentage of revenue/sales left after subtracting the cost of goods sold. A company that boasts a higher gross profit margin than its competitors and industry is more efficient. Investors tend to pay more for businesses that have higher efficiency ratings than their competitors, as these businesses should be able to make a decent profit as long as overhead costs are controlled (overhead refers to rent, utilities, etc.).
• Gross Margin 2010 = $15.942 million / $31.485 million = 50.63%.
• Gross Margin 2011 = $20.138 million / $38.858 million = 51.82%.
• Gross Margin 2012 = $27.872 million / $52.610 million = 52.98%.
Over the past three years, the gross margin has increased. The ratio has increased from 50.63% in 2010 to 52.98% in 2012. As the margin has increased, this indicates the company has become more efficient.
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Asset Turnover
The formula for the asset turnover ratio evaluates how well a company is utilizing its assets to produce revenue. The numerator of the asset turnover ratio formula shows revenue found on a company's income statement and the denominator shows total assets, which are found on a company's balance sheet. Total assets should be averaged over the period of time that is being evaluated.
Revenue growth
• Revenue 2010 = $31.485 million.
• Revenue 2011 = $38.858 million.
• Revenue 2012 = $52.610 million.
• Equals an increase of 67.09%.
Total Asset growth
• Total Assets 2010 = $74.821 million.
• Total Assets 2011 = $87.740 million.
• Total Assets 2012 = $82.714 million
• Equals an increase of 10.55%.
As the revenue growth exceeded the asset growth on a percentage basis, this indicates that the company is making money on its assets.
Based on the nine different criteria above we can see that the focus on U.S. sales has had a positive influence on the company. Based on the above criteria, Bolt Technology is showing a decline in its working capital, having stated that a current ratio of 7.32 is very strong. All indications above are revealing that Bolt Technology is a solid company and has been able to take advantage of the growth in the industry over the past couple of years.
Analysts at MSN Money are estimating the growth in EPS to continue for Bolt Technology's over the next few years. They are estimating Bolt Technology's to post an EPS of $1.30 for FY 2013 and $1.58 in FY 2014.
Valuation
B. Annual growth rate
• EPS 2010 = $0.58
• EPS 2011 = $0.65
• EPS 2012 = $0.23
• EPS 2012 = $1.30 (Estimate MSN Money)
• EPS 2013 = $1.58 (Estimate MSN Money)
(A / P) ^ (1 / T) - 1 = R
(1.58 / 0.58) ^ (1 / 5) - 1 = R
R = 22.19%
Earnings per share average growth rate over the 3 past years and estimated 2 years forward = 22.19%
Current PE Ratio = 21.00 based off a share price of $15.75 and a current EPS of 0.75 which is the 2012 EPS before adjustment of contingent earnout.
21.00 / 22.19 = 0.21
PEG Ratio = 0.95
A current PEG ratio of 0.95 based on an EPS average growth rate from 2010 to 2014 indicates that based on the next few years estimates the stock is currently slightly undervalued.
Based on the information above, Bolt Technology's focus on U.S. sales has been very beneficial for the company. As the company is situated in an industry that is poised for growth over next few years analysts have a positive view for the stock moving forward. Bolt Technology has indicated strong financial strength over the past 3 years and looks to continue it its strength and growth in profitability for the next couple of years. Based on the PEG ratio of 0.95, Bolt Technology looks to be undervalued at this point. Based on the information above, this looks to be an excellent opportunity to invest in a company with a strong balance sheet and excellent growth opportunities moving forward.
Chart sourced by Finviz
By. Jeff Williams
