BUSINESS
Kornit Digital Ltd. develops, designs, and markets digital printing solutions for the fashion, apparel, and home decor segments of printed textile industry in the United States, Europe, the Middle East, Africa, the Asia Pacific, and internationally. The company’s solutions include digital printing systems, ink and other consumables, associated software, and value-added services. Its products and services include direct-to-garment printing platform for smaller industrial operators to mass producers; NeoPigment ink and other consumables; QuickP designer software; and maintenance and support, consulting, and professional services. The company serves decorators, online businesses, brand owners, and contract printers. Kornit Digital Ltd. was incorporated in 2002 and is headquartered in Rosh HaAyin, Israel.
INVESTMENT RATING
KRNT’s future returns on capital are forecasted to fall short of the cost of capital. Accordingly, the company is expected to continue to be a modest Value Eraser.
Kornit Digital has a current Value Trend Rating of F (Lowest Rating).
The Value Trend Rating reflects inconsistent signals from PTR’s two proprietary measures of a stock’s attractiveness. Kornit Digital has a neutral Appreciation Score of 46 but a very low Power Rating of 1, triggering the Lowest Value Trend Rating.
Kornit Digital’s stock is selling below targeted value. The current stock price of $19.16 compares to targeted value 12 months forward of $23.
This neutral appreciation potential results in an appreciation score of 46 (54% of the universe has greater appreciation potential.)
Kornit Digital has a Power Rating of 1. (This very low Power Rating indicates that KRNT only has a better chance of achieving attractive investment performance over the near to intermediate term than 1% of companies in the universe.)
Factors contributing to this very low Power Rating include: the Printing Trades Machinery, Equipment comparison group is in an extremely unfavorable position currently; recent price action has been extremely unfavorable; and the trend in KRNT’s earnings estimates has been unfavorable in recent months.
INVESTMENT PROFILE
KRNT’s financial strength is above average. Financial strength rating is 65.
Relative to the S&P 500 Composite, Kornit Digital Ltd has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that KRNT is higher risk. Relative weaknesses include: low historical profitability, high stock price volatility, and high earnings variability. KRNT’s valuation is high: low dividend yield, high P/E ratio, and low price/book ratio. KRNT has unusually low market capitalization.
CURRENT SIGNALS
Kornit Digital’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.
Kornit Digital’s current technical position is very weak. The stock price is in a 1.4 month down move. The stock has declined 14.6% from its prior high. The stock price is below its 200 day moving average which is in a downtrend.
ALERTS
Important positive changes in Kornit Digital Ltd (NASDAQ: KRNT) investment behavior have recently occurred: the stock rose on very heavy volume.
Slight negative changes in Kornit Digital Ltd (NASDAQ: KRNT) fundamentals have recently occurred: significant quarterly earnings deceleration occurred.
In light of this new information we are reviewing our current Overall Rating of F. This review will be completed in the next several days.
Kornit Digital Ltd (NASDAQ: KRNT) has reported a loss for its fourth fiscal quarter (ending December 31) of $-0.48 versus a loss $-0.71 for the same period a year ago. For the latest four quarters through December 31, E.P.S. were $-1.31 versus $-1.59 for the same period a year ago.
Kornit Digital Ltd (NASDAQ: KRNT) stock enjoyed a major increase of 11.9% on 2/14/24. The shares closed at $19.16. Moreover, exceptionally high trading volume at 309% of normal accompanied the advance. The stock has been extremely weak relative to the market over the last nine months but has risen 9.1% during the last week.
CASH FLOW
In 2022, Kornit Digital experienced a very significant reduction in cash of -$248.83 million (-38%). Sources of cash were much lower than uses. Cash consumed from 2022 EBITDA totaled -$53.45 million. Non-operating sources contributed +$10.78 million (-20% of EBITDA). Cash taxes consumed -$22.02 million (+41% of EBITDA). Re-investment in the business amounted to -$211.27 million (+395% of EBITDA). On a net basis, debt investors pulled out -$1.20 million (+2% of EBITDA) while equity investors provided +$28.33 million (-53% of EBITDA).
Kornit Digital’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Kornit Digital Peer Group. In most years, Kornit Digital was in the top quartile and third quartile. Currently, Kornit Digital is slightly below median at -20% of EBITDA (+$10.78 million).
Kornit Digital’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Kornit Digital Peer Group. In most years, Kornit Digital was in the top quartile and second quartile. Currently, Kornit Digital is upper quartile at +41% of EBITDA (-$22.02 million).
Kornit Digital’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Kornit Digital Peer Group. (Since 2020 Business Re-investment, %EBITDA has accelerated very sharply.) In most years, Kornit Digital was in the third quartile and top quartile. Currently, Kornit Digital is upper quartile at +395% of EBITDA (-$211.27 million).
Kornit Digital’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Kornit Digital Peer Group. (Since 2019 Debt Investors, %EBITDA has experienced a very sharp decline.) In most years, Kornit Digital was in the third quartile and top quartile. Currently, Kornit Digital is substantially below median at +2% of EBITDA (-$1.20 million).
Kornit Digital’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Kornit Digital Peer Group. (Since 2020 Equity Investors, %EBITDA has experienced a very sharp recovery.) In most years, Kornit Digital was in the top quartile. Currently, Kornit Digital is lower quartile at -53% of EBITDA (+$28.33 million).
Kornit Digital’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Kornit Digital Peer Group. (Since 2020 Change in Cash, %EBITDA has experienced a very sharp recovery.) In most years, Kornit Digital was in the top quartile and lower quartile. Currently, Kornit Digital is at the upper quartile at +466% of EBITDA (-$248.83 million).
Kornit Digital’s Cash, %Revenue has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Kornit Digital Peer Group. (Since 2020 Cash, %Revenue has experienced a very sharp decline.) In most years, Kornit Digital was in the top quartile and second quartile. Currently, Kornit Digital is at the upper quartile at +147%.
PROFITABILITY
Kornit Digital’s return on equity has eroded very significantly since 2013. The current level is -9.4% versus the high of 7.3% and the low of -9.4%.
This very significant erosion was due to very strong negative trend in pretax operating return and little change in non-operating factors.
The productivity of Kornit Digital’s assets declined over the full period 2013-2023: asset turnover has suffered a very strong overall downtrend.
Reinforcing this trend, pretax margin experienced a very strong overall downtrend that accelerated very sharply from the 2021 level.
Non-operating factors (income taxes and financial leverage) had little influence on return on equity.
Kornit Digital’s return on equity is lower quartile (-9.4%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is lower quartile (-5.9%) reflecting asset turnover that is lower quartile (0.25X) and lower quartile pretax margin (-23.2%).
Tax “keep” rate (income tax management) is at the upper quartile (145.8%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is lower quartile (1.09X).
GROWTH RATES
There are no significant differences between Kornit Digital’s longer term growth and growth in recent years.
Kornit Digital’s historical income statement growth and balance sheet growth have diverged. Revenue growth has fallen short of asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been 1.1% per year.
Total asset growth has been 22.9% per year.
Annual E.P.S. growth has been 25.0% per year.
Equity growth has been 29.1% per year.
Kornit Digital’s consensus growth rate forecast (average of Wall Street analysts) is 40.0% — substantially above the average of the historical growth measures.
Relative to the Kornit Digital Peer Group, Kornit Digital’s historical growth measures are erratic. Equity growth (29.1%) has been upper quartile. Total asset growth (22.9%) has been upper quartile. E.P.S. growth (25.0%) has been substantially above median. Revenue growth (1.1%) has been lower quartile.
Consensus growth forecast (40.0%) is at median.
PRICE HISTORY
Over the full time period, Kornit Digital’s stock price performance has been variable and below market. Between April, 2015 and February, 2024, Kornit Digital’s stock price rose +29%; relative to the market, this was a -46% loss. Significant price moves during the period: 1) July, 2023 – October, 2023: -56%; 2) October, 2021 – April, 2023: -89%; 3) March, 2020 – October, 2021: +572%; 4) December, 2018 – January, 2020: +123%; and 5) September, 2016 – July, 2017: +121%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -32.1% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -32.1% is below median relative to Kornit Digital Ltd Peer Group.
Current 5-year total return performance of -2.2% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of -2.2% relative to S&P 500 Composite, Kornit Digital’s total return performance is slightly above median relative to Kornit Digital Ltd Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, KRNT’s overall valuation is low. Ratio of enterprise value/revenue is above median. Ratio of enterprise value/assets is near the lower quartile. Price/equity ratio is lower quartile. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Relative to Kornit Digital Peer Group, KRNT’s overall valuation is normal. Ratio of enterprise value/revenue is at the upper quartile. Ratio of enterprise value/assets is below median. Price/equity ratio is at the lower quartile. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Kornit Digital has a major value gap compared to the median valuation. For KRNT to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 4.35X to 2.95X. If KRNT’s ratio of enterprise value/revenue were to fall to 2.95X, its stock price would be lower by $-6 to $13.
For KRNT to fall to lower quartile valuation relative to the Kornit Digital Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 4.35X to 1.58X. If KRNT’s ratio of enterprise value/revenue were to fall to 1.58X, its stock price would decline by $-13 from the current level of $19.
VALUE TARGETS
KRNT’s future returns on capital are forecasted to fall short of the cost of capital. Accordingly, the company is expected to continue to be a modest Value Eraser.
Kornit Digital’s current Price Target of $22 represents a +17% change from the current price of $19.16.
This neutral appreciation potential results in an appreciation score of 46 (54% of the universe has greater appreciation potential.)
With this neutral Appreciation Score of 46, the low Power Rating of 1 results in an Value Trend Rating of F.
Kornit Digital’s current Price Target is $22 (+53% from the 2022 Target of $15 and +17% from the 02/14/24 price of $19.16). This dramatic rise in the Target is the result of a +53% increase in the equity base and a +0% change in the price/equity multiple. None of the Value Drivers has an impact on the price/equity multiple. The forecasted decline in growth has no impact on the multiple. The forecasted decline in cost of equity also has no impact and the decline in return on equity didn’t either.
PTR’s return on equity forecast is 4.0% — in line with our recent forecasts. Forecasted return on equity suffered a dramatic, steady decline between 2014 and 2022. The current forecast is well below the 2014 peak of 13%.
PTR’s growth forecast is 27.0% — significantly below our recent forecasts. Forecasted growth enjoyed a dramatic, variable increase between 2014 and 2022. The current forecast is significantly above the 2018 low of 15%.
PTR’s cost of equity forecast is 5.5% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, variable decline between 2014 and 2022. The current forecast is below the 2014 peak of 9.9%.
At Kornit Digital’s current price of $19.16, investors are placing a positive value of $33 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 39.0% per year, and a return on equity of 4.3% versus a cost of equity of 5.5%.
PTR’s 2024 Price Target of $22 is based on these forecasts and reflects an estimated value of existing assets of $27 and a value of future investments of $-5.
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