RF Industries (NASDAQ: RFIL) is no megacorporation but it is a company investors should tune into. It manufactures a wide assortment of RF and related componentry used by communications industries of all stripes. The business is being supported by the push toward 5G as well, and it is in business with tier-1 wireless carriers to boot. Although no mention has been made in the reports of which this news can only mean Verizon (NYSE: VZ), AT&T, and T-Mobile (NASDAQ: TMUS) which command 87% of the wireless market share between them, not to mention they are the leading providers of 5G services and expanding their networks at a rapid pace. The takeaway is that RF Industries is in a solid position for the next few years at least and it just went on sale for no fathomable reason.
"We are pleased to report our highest quarterly revenue in company history. Q3 was another strong quarter of revenue growth and continued gross margin improvement that reflects both an organic increase in our overall business and higher margin revenue contribution from our successful acquisition of Microlab, which performed extremely well in the quarter. Our hybrid fiber business also remained strong, and we were pleased to announce last week another order from our newest North American Tier 1 wireless carrier customer to support their infrastructure build.
RF Industries Insiders Are Buying
RF Industries' insider and institutional activity took on a bullish tone in late 2021 when it became obvious there were tailwinds supporting this company’s business. The institutions are still a little reserved in their sentiment and own only 37% of the company but that is up substantially from the prior year. Since then, activity has slacked off and smacks of rotation within the group but there is also insider activity to consider. The insiders, primarily Director Mark Holdsworth, have been buying shares pushing the insider ownership up to over 12%. Net insider buying is worth about 1.6% of the pre-Q3 earnings release market cap over the past 12 months and Mr. Holdsworth himself owns more than 5.2% of the company.
RF Industries Posts Record Quarter, Wider Margin
RF Industries posted a fabulous quarter in which revenue of $23.84 million grew 56% YOY to set a new record. Sales are underpinned by the hybrid cable product line and beat the consensus estimate by 900 basis points as well. The revenue was accompanied by margin improvement as well but there is some bad news here. The company widened its gross margin by 200 basis points on a GAAP and adjusted basis but both the GAAP and adjusted EPS fell on a YOY basis. The culprit is the ERC credits the company received last year which, when backed out of the equation, leave the earnings up in both comparisons.
The only really bad news is that adjusted EPS of $0.12 missed the consensus by a penny but there is only one analyst covering the stock and the last report came out in March. As far as the outlook is concerned, the company is guiding for revenue in the range of $21.75 million for the 4th quarter which would be a sequential decrease albeit a large YOY gain as well. This news may be why the market imploded but opens the door for outperformance as well. The company has clear momentum and the backlog has grown from the end of the quarter to date so there is a strong chance the guidance is overly cautious.
The Technical Outlook: RF Industries Pulls Back To Support
Shares of RFIL pulled back more than 10% in premarket trading and are offering a deep discount on the already cheap stock. Trading at this level, the company is only 15X its earnings with solid fundamentals for the business. The stock may fall further but support buying should become evident near the $6 level.