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About Daktronics
My first job ever was running a men’s basketball league with my father.
Every Saturday and Sunday morning, we would get up early, get some McDonald’s, load up on some sausage patties and hash browns, scarf them down all too quickly, make our way towards our local YMCA (shoutout to the since closed High Ridge YMCA, where nothing but memories were made), set up some chairs on the sidelines and tables, crack open the booklet where we hand wrote and carefully recorded and kept individual player stats and, my personal favorite, taking the sideline scoreboard out of its box, flicking up the “on” switch on the right side of the console (yeah, you bet I still remember where all of the key elements were on the console), and immediately watch the lights flicker on both the mini-scoreboard I was in charge of operating as well as the main scoreboard planted on the side on the wall on the opposite side for everyone to see.
In the interest of being completely honest, I took a lot of pride in my first job, dedicating my left hand to adding points on the board and keeping track of each respective team’s foul count on the board as well, while my right hand was completely and solely occupied with a little doodad that housed both a flat square button that once pressed, would activate the horn and right above it a flick-left, flick-right mechanism that started and stopped the clock.
While I’d like to think I did a pretty good job for a young kid in this position, especially considering that it was an adult men’s league and not just a weekend peewee basketball league where the major highlight of the day was little Joey not traveling or moving illegally with the ball, there were some, let’s say, formidable experiences that I had during my time as a scorekeeper, and looking back on them, I wouldn’t change a thing.
From watching a player who also moonlit as a janitor at the same YMCA knock down a game winning three-point buzzer-beater in the corner, crashing into chairs while everyone in the small, dusty gym, to put it both formally and technically, went absolutely bonkers, to players chirping at one another and immediately hearing the foulest of language and occasionally watching one man absorb (or not) another man’s fist in their jaw, not to mention the occasional grown man accusing me of miscounting on the scoreboard and us exchanging some pleasantries, I’ll always cherish my time at the YMCA and a large part of that was my time operating and falling in and out of love with the Daktronics BB-2122 I was in charge of running every single weekend.
That’s my story and I’m sticking to it, and yeah, I’ll be the first to admit that prior to drafting this stock analysis article, I performed a lot of research (more than I would like to admit) in searching for the exact make and model of the digital scoreboard I used when I was younger.
At any rate, while I am sure to a certain degree you came for the personal childhood scoreboard stories, I know for an absolute fact that you came for some more on Brookings, South Dakota-based Daktronics, so let me tell you a little bit more about the company itself and then allow us to get more familiar with the numbers behind this company in order to slap on opinion on this company and its stock (NASDAQ: DAKT).
Sure, a meaningful portion of Daktronics business is rooted in selling recreation-level scoreboards (i.e., my first job), however, the company is also in the business of manufacturing, marketing and selling digital billboards, screen displays on the faces of jumbotrons in stadiums, arenas and other venues with main screens where many people tend to gather (an example of this might be a place of worship) all across the United States, as well as display screens that we’ve all seen on the side of a gas station, showing the current gas prices at the respective station.
Evidently, Daktronics is in the traditional displayed media business, at the end of the day.
While at this point I usually confidently speculate as to whether or not a company’s core business model is prone to being resistant to recessionary and/or inflationary pressures, and while I think to a large degree it could go either way, Daktronics does have some natural sensitivities in the major live event spectrum, as during COVID this company likely saw a sharp drop in sales in its main venue categories, as universities and certain professional sports leagues weren’t holding games and thus there was, at the time, no need for Daktronics’ products and services.
I acknowledge this type of sensitivity, but it makes me all the more eager to see just how vulnerable this company is in this arena.
Pun obviously intended.
I’m going to be quiet now and let the numbers talk.
Daktronics’ stock financials
First things first, it’s fun to just briefly point out that Daktronics is a smaller company than we usually analyze, at least purely on the basis of its market capitalization, which, basically every single company I’ve studied up on and wrote about in the past was well into the billions, finding itself at a valuation of $521.94 million, with an associated stock price of $11.30, not to mention its prevailing price-to-earnings (P/E) ratio of 9.71, and it also pays its shareholders a regular annual dividend of $0.00 as of this publication.
In attempting to extract some meaningful information from this initial data, I am not complaining, as this company’s current price-to-earnings ratio indicates that its shares (NASDAQ: DAKT) are trading at a notable discount relative to their intrinsic, fair value, as a reference, being that the commonly held fair value P/E benchmark is 20 and it is said that any security trading at less than 20 in this context is trading at a discount, and I am also not too hung up on the company not issuing a dividend, as it runs a fairly equipment-heavy business model and therefore it would probably be wise if instead of bleeding some cash each quarter, it simply retained as much as it could and put it right back into its business(es) in order to fund current operations as well as growth.
Onto the condition of the company’s balance sheet, Daktronics’ management team is responsible for tending to and properly deploying $468 million in terms of total assets along with $267 million in terms of total liabilities, once again lending me some happiness as this enterprise has far more total assets than liabilities, telling me that it can reasonably afford to grow both internally and externally, and if another severe COVID wave were to occur, this balance sheet breakdown gives me some comfort in that it indicates that Daktronics is prepared for some lean, rough years, if they were to occur, or at least it wouldn’t more than likely go out of business as a result of the resulting headwinds.
As it relates to the company’s income statement, Daktronics’ recent annual revenue figures (specifically stemming from and beyond 2019) have proven to perform fairly well each and every year, but, as I expected, experienced a softer 2021 as a result of its arena and venue segments being basically shut down during 2020. More specifically, however, the company’s revenues in 2019 stood at $570 million, rising the next year to $609 million, dipping down to $482 million in 2021 (again, expected and not as bad as I thought it might’ve been), taking back the reins in 2022 and rising back up to $611 million, leading up to its latest reported figure of $754 million, as displayed and reported in 2023.
To me, the 2021 loss isn’t as material of a loss as I was afraid of, and while a decline in revenues is never a desirable outcome, I am frankly glad it wasn’t as massive of a drop as it could’ve been, pointing to the fact that the firm’s management has done a good job in properly diversifying its revenue streams, and there was also a solid rebound that followed this era, so all things accounted for, I am not losing any sleep over the company’s slight revenue dip during this short lived time period.
Peering over to Daktronics’ cash flow statement, the company’s total cash from operations have seen their fair share of ups and downs over the same 2019-2023 time frame, ranging between a valley of -$27 million (2022) and a relative peak of $66 million in the prior year, which instantly leads me to want to gain some more clarity regarding the company’s profitability picture, and, per usual, how it particularly sizes up against (or doesn’t, for better or worse) that of some of its competitors.
Daktronics’ stock fundamentals
In painting a clearer profitability picture, according to the figures shown on Charles Schwab’s platform, Daktronics’ net profit margin stands at a comparably healthy posture of 6.59% to many of its (direct and indirect) competitor’s negative respective averages, for example, with similar companies such as PowerFleet and Lightwave Logic maintaining negative net profit margins, perhaps this being a result of Daktronics being one of the first movers (if not the first mover in the space), nabbing up a lot of both lucrative and profitable corners of market share early on, continuing to keep this share over time, leaving the less profitable crumbs for the trailing competition.
It is also worth momentarily noting that Daktronics’ return on equity (ROE) (as also found on Charles Schwab’s brokerage platform), also with respect to the competition, has been nothing but excellent, standing at 25.75% to, for instance, PowerFleet’s and Lightwave’s much less impressive and far from promising ROE stats of -27.37% and -63.38%, respectively.
Should you buy Daktronics stock?
What started out as a much needed trip down memory lane turned into a very fun stock analysis exercise and a lot of pleasant surprises as well, as this South Dakotan company’s stock (NASDAQ: DAKT) is apparently undervalued by a good margin (according to its aforementioned price-to-earnings ratio), its balance sheet is in trim condition, its revenues have been trending in the right direction and the blow of COVID-19 wasn’t as damaging to its revenues as I had initially assumed, its net profit margin is in great shape and its return on equity the same.
Now I can say that I’ve kept score both with and on Daktronics, and as a brief aside, whether anyone really cares or not, when I interfaced with the company’s products back in the day (I feel old, for real), I truly don’t recall having any issues with its machines nor did I think the quality of the machines were anything but, well, top-shelf, and it’s just nice to know that there are still some companies out there that are intent on keeping their products quality and their clients and end users happy, and in putting all of this subjective and objective information together, I think it makes the most sense to offer Daktronics’ stock (NASDAQ: DAKT) a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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