BUSINESS
BK Technologies Corporation, through its subsidiary, BK Technologies, Inc., engages in design, manufacture, and markets wireless communications products in the United States and internationally. The company offers two-way land mobile radios (LMR), repeaters, base stations, and related components and subsystems. Its BK Technologies, BKR, and BK Radio branded products include LMR equipment for professional radio users primarily in government, public safety, and military applications, as well as P-25 digital products; and RELM branded products provide two-way communications for commercial and industrial concerns, such as hotels, construction firms, schools, and transportation services. The company was incorporated in 1997 and is headquartered in West Melbourne, Florida.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be in line with the cost of capital, BKTI is expected to continue to be Value Creation neutral.
BK Technologies has a current Value Trend Rating of D (Negative).
This rating combines very contradictory signals from two proprietary PTR measures of a stock’s attractiveness. BK Technologies has a very low Appreciation Score of 7 but a slightly positive Power Rating of 62, triggering the Negative Value Trend Rating.
BK Technologies’ stock is selling significantly above targeted value. The current stock price of $13.75 compares to targeted value 12 months forward of $5.
BK Technologies’ very low appreciation potential results in an appreciation score of 7 (93% of the universe has greater appreciation potential.)
BK Technologies has a Power Rating of 62. (This slightly positive Power Rating indicates that BKTI’s chances of achieving attractive investment performance over the near to intermediate term are only average.)
Contributing to this slightly positive Power Rating: recent price action has been slightly favorable. An offsetting factor is the Radio, TV Broadcast, Communication Equipment comparison group is in a slightly weakened position currently.
INVESTMENT PROFILE
BKTI’s financial strength is low. Financial strength rating is 30.
Relative to the S&P 500 Composite, BK Technologies Corp has significant Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that BKTI is higher risk. Low financial leverage is a positive for BKTI. Relative weaknesses include: low historical profitability, low financial strength, low expected growth, low historical growth, and high earnings variability. BKTI’s valuation is high: low dividend yield, high P/E ratio, and moderate price/book ratio. BKTI has unusually low market capitalization.
CURRENT SIGNALS
BK Technologies’ current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
BK Technologies’ current technical position is moderately positive. The stock price is in a 2.8 month up move. The stock has appreciated 28.6% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
. Positive development: positive upside/downside volume developed. Negative development: the stock fell on very heavy volume.
Positive development: significant quarterly sales acceleration occurred. Negative development: significant quarterly earnings deceleration occurred.
The stock is currently rated D.
BK Technologies Corp (NYSEAMERICAN: BKTI) stock suffered a large decline of -7.8% on 5/6/24. The stock closed at $13.75. Moreover, exceptionally high trading volume at 793% of normal accompanied the decline. The stock has declined -2.8% during the last week but has been strong relative to the market over the last nine months.
CASH FLOW
In 2023, BK Technologies generated a very significant increase in cash of +$1.54 million (+80%). Sources of cash were much larger than uses. Cash generated from 2023 EBITDA totaled +$0.86 million. Non-operating uses consumed -$0.82 million (-96% of EBITDA). Cash taxes consumed -$0.05 million (-6% of EBITDA). Re-investment in the business amounted to -$0.87 million (-102% of EBITDA). On a net basis, debt investors withdrew -$0.97 million (-113% of EBITDA) while equity investors furnished +$3.41 million (+397% of EBITDA).
BK Technologies’ Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Bk Technologies Peer Group. In most years, BK Technologies was in the top quartile and third quartile. Currently, BK Technologies is lower quartile at -96% of EBITDA (-$0.82 million).
BK Technologies’ Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Bk Technologies Peer Group. In most years, BK Technologies was in the top quartile and lower quartile. Currently, BK Technologies is at the upper quartile at -6% of EBITDA (-$0.05 million).
BK Technologies’ Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Bk Technologies Peer Group. In most years, BK Technologies was in the top quartile and lower quartile. Currently, BK Technologies is substantially below median at -102% of EBITDA (-$0.87 million).
BK Technologies’ Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Bk Technologies Peer Group. (Since 2021 Debt Investors, %EBITDA has experienced a very sharp decline.) In most years, BK Technologies was in the top quartile and lower quartile. Currently, BK Technologies is lower quartile at -113% of EBITDA (-$0.97 million).
BK Technologies’ Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Bk Technologies Peer Group. In most years, BK Technologies was in the top quartile and second quartile. Currently, BK Technologies is upper quartile at +397% of EBITDA (+$3.41 million).
BK Technologies’ Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Bk Technologies Peer Group. (Since 2021 Change in Cash, %EBITDA has experienced a very sharp decline.) In most years, BK Technologies was in the top quartile. Currently, BK Technologies is upper quartile at +179% of EBITDA (+$1.54 million).
BK Technologies’ Cash, %Revenue has suffered a strong overall downtrend over the period. This downtrend was accompanied by stability for the Bk Technologies Peer Group. In most years, BK Technologies was in the top quartile and second quartile. Currently, BK Technologies is below median at +5%.
PROFITABILITY
BK Technologies’ return on equity has eroded very significantly since 2014. The current level is -10.5% versus the high of 4.9% and the low of -57.8%.
This very significant erosion was due to very strong negative trend in pretax operating return and strong positive trend in non-operating factors.
The productivity of BK Technologies’ assets rose over the full period 2014-2023: asset turnover has enjoyed a very strong overall uptrend that accelerated very sharply after the 2021 level.
BK Technologies’ pretax margin experienced a very strong overall downtrend over the period 2014-2023.
Non-operating factors (income taxes and financial leverage) had a significant positive influence on return on equity.
BK Technologies’ return on equity is substantially below median (-10.5%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is substantially below median (-4.4%) reflecting asset turnover that is upper quartile (1.50X) and substantially below median pretax margin (-2.9%).
Tax “keep” rate (income tax management) is at the upper quartile (102.5%) resulting in after tax return on assets that is substantially below median.
Financial leverage (leverage) is below median (2.32X).
GROWTH RATES
Overall, BK Technologies’ growth rate has slowed very considerably in recent years.
BK Technologies’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been -2.7% per year.
Total asset growth has been -7.1% per year. (More recently it has been -13.7%.)
Annual E.P.S. growth has been -26.3% per year.
Equity growth has been -14.5% per year. (More recently it has been -45.6%.)
No consensus growth rate forecast is available for BK Technologies.
Relative to the Bk Technologies Peer Group, BK Technologies’ historical growth measures are generally lower quartile. Revenue growth (-2.7%) has been substantially below median. Total asset growth (-7.1%) has been lower quartile. E.P.S. growth (-26.3%) has been lower quartile. Equity growth (-14.5%) has been lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, BK Technologies’ stock price performance has been variable and significantly below market. Between July, 2013 and May, 2024, BK Technologies’ stock price fell -31%; relative to the market, this was a -78% loss. Significant price moves during the period: 1) April, 2021 – November, 2021: -51%; 2) March, 2020 – April, 2021: +178%; 3) June, 2019 – March, 2020: -61%; and 4) August, 2013 – April, 2015: +157%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 3.2% is below median relative to the S&P 500 Composite.
In addition to being below median relative to S&P 500 Composite, current annual total return performance through April, 2024 of 3.2% is slightly above median relative to BK Technologies Corp Peer Group.
Current 5-year total return performance of -4.9% is lower quartile relative to the S&P 500 Composite.
Through April, 2024, with lower quartile current 5-year total return of -4.9% relative to S&P 500 Composite, BK Technologies’ total return performance is below median relative to BK Technologies Corp Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, BKTI’s overall valuation is quite low. Ratio of enterprise value/assets is below median. Price/equity ratio is below median. Ratio of enterprise value/revenue is lower quartile. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Relative to BK Technologies Peer Group, BKTI’s overall valuation is high. Price/equity ratio is at the upper quartile. Ratio of enterprise value/assets is at the upper quartile. Ratio of enterprise value/revenue is above median. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
BK Technologies has a large value gap compared to the median. For BKTI to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 0.77X to 0.65X. If BKTI’s ratio of enterprise value/revenue were to fall to 0.65X, its stock price would be lower by $-2 to $11.
For BKTI to achieve upper quartile valuation relative to the BK Technologies Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.77X to 1.01X. If BKTI’s ratio of enterprise value/revenue were to rise to 1.01X, its stock price would increase by $5 from the current level of $14.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be in line with the cost of capital, BKTI is expected to continue to be Value Creation neutral.
BK Technologies’ current Price Target of $4 represents a -68% change from the current price of $14.06.
BK Technologies’ very low appreciation potential results in an appreciation score of 7 (93% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 7, the moderately high Power Rating of 62 results in an Value Trend Rating of D.
BK Technologies’ current Price Target is $4 (-9% from the 2023 Target of $5 and -68% from the 04/30/24 price of $14.06). This slight fall in the Target is the result of a -10% decrease in the equity base and a +1% increase in the price/equity multiple. The forecasted growth has no impact on the price/equity multiple and the forecasted flat return on equity has no impact either. However, the forecasted decline in cost of equity has a very slight positive impact.
PTR’s return on equity forecast is 4.0% — in line with our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2015 and 2023. The current forecast is below the 2017 peak of 8%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth suffered a dramatic, erratic decline between 2015 and 2023. The current forecast is well below the 2016 peak of 5%.
PTR’s cost of equity forecast is 4.9% — in line with recent levels. Forecasted cost of equity exhibited a slight, erratic increase between 2015 and 2023. The current forecast is steady at the 2015 low of 3.4%.
At BK Technologies’ current price of $14.06, investors are placing a positive value of $4 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 4.0% versus a cost of equity of 5.0%.
PTR’s 2025 Price Target of $4 is based on these forecasts and reflects an estimated value of existing assets of $11 and a value of future investments of $-7.
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