ProDex
Q2 2022
By Manuel Maurício
February 07, 2022
Prodex’s results came out last week and the share price immediately took a nose dive. I peeked at the numbers, but they didn’t seem all that bad to me.
The revenue went up 23% year-on-year…
…led by growing sales of the CMF driver and the Orthopedic handpiece.
The company was able to keep its its margins at 33% from the 31% in the prior year…
…and through rigorous cost discipline, the operating margin went up to 16%.
Looking at the Net Income on a quarter-by-quarter basis is almost useless given the existence of a line called “Unrealized gain (loss) on marketable equity investments“. Those who follow Prodex know that the company has 2 directors who like to invest the excess cash into stock of other companies.
This line will vary in tandem with the stock price of those companies, thus adding an unnecessary layer of complexity to the financials. The company used to show this line after the Net Income line, but they’ve changed the way they report.
On a quarter-by-quarter basis it’s better to stop at the Operating Income level.
Conclusion
The company states that the supply disruptions may start to impact their operations and that the company may not be able to pass through the increased costs to its customers. I don’t particularly like this because it reiterates the power of the few big customers.
And then the management goes on to say:
“The internal projects currently under development have been delayed because we have been engaged by our customers to complete several billable non-recurring engineering projects.“
“To focus on these secured customer contracts, we have transferred resources from our internal research and development projects thus delaying the launch of our internal products.“
“currently our largest customer is delaying issuance of purchase orders to us because they are releasing a next generation of their handpiece, but we expect to receive orders for the balance of the fiscal year shortly“
I’m not sure if these are all related or not. I don’t even understand if their largest customer has already developed its new handpiece or if Prodex is helping them develop it. It’s all a bit too cryptic as always.
At the current price, Prodex is trading at 19x earnings. Not blatantly cheap, but I wouldn’t say that it’s expensive either, especially so when the largest customer is releasing a next generation of their handpiece – which should help drive revenue up.
I’ve sent a couple of emails to the company, but I’ve not heard from them yet. I think I’m just going to call them to see if I get any luck.
In the meantime, Prodex will be kept in the Portfolio as a core long term position.
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