Clearfield Inc: Bullish 5G Stock Overlooked Despite Record Q3 & Increased Guidance

Clearfield Stock Up 113% Year-to-Date & 2022 Looks Even Better

The 5G space is getting awfully crowded, with many of the most popular names hogging the limelight. One excellent 5G stock that seems unjustly ignored, however, is Clearfield Inc (NASDAQ:CLFD).

A specialist in fiber management for communication service providers, Clearfield recently reported record third-quarter results, raised its guidance for fiscal 2021, and provided strong guidance for 2022. Moreover, to address ongoing growth opportunities, the company recently ramped up its production capacity.

Since Clearfield Inc was founded in 2008, its customer base has grown to more than 700. The company has turned a profit every single year, has $58.9 million in cash, and has zero debt. (Source: “Investor Presentation: September 2021,” Clearfield Inc, last accessed October 26, 2021.)

That might explain why CLFD stock has been quietly thumping the broader market. As of this writing, Clearfield stock is up by:

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  • 20% month-to-date
  • 46% over the last three months
  • 83% over the last six months
  • 113% year-to-date
  • 149% year-over-year

With 5G technology still in its infancy and the demand for Clearfield Inc’s products exploding, there’s every reason to believe CLFD stock could do just as well in 2022 and beyond.

Chart courtesy of StockCharts.com

CLFD Stock Overview

5G wireless networks need fiber, and that’s what Clearfield provides through its “fiber to anywhere” platform.

The company designs, manufactures, and distributes fiber-optic management, protection, and delivery products for communication networks. (Source: “Investor Presentation September 2021,” Clearfield Inc, op. cit.)

In the U.S., we’re generally focused on the highest band on the 5G spectrum. This provides us with maximum speeds, but the issue with the high band range is that it cannot go very far, so you need to use many more wireless devices.

Whereas a single 4G cell, served by fiber, could potentially provide service to 10 square miles, you would need 60 5G cells to cover a 750-foot area. Serving that smaller 5G field requires about eight miles of fiber.

Clearfield Inc focuses on fiber management, fiber protection, and fiber delivery products that accelerate the turn-up of gigabit-speed bandwidth to residential homes, businesses, and network infrastructure. The company also caters to the needs of the utility, municipality, data-center, enterprise, and military sectors.

Clearfield leads the industry by helping service providers reduce the high costs associated with deploying, managing, protecting, and scaling fiber-optic networks. In fact, the company deploys millions of fiber ports each year throughout North America and beyond.

In July, Clearfield announced that it had expanded its manufacturing capacity in Tijuana, Mexico.

The company entered a lease for a 319,000-square-foot manufacturing and warehouse center being built to its specifications. The facility is scheduled to start production in early 2022. (Source: “Clearfield Ramps Production Capacity,” Clearfield Inc, July 26, 2021.)

With the addition of the Tijuana facility and the expansion of the company’s workforce, Clearfield is positioned to more than triple its manufacturing presence in Mexico and augment its investment in U.S. production.

Clearfield Inc Announces Record Results & Raises Guidance

For the third quarter of fiscal 2021 ended June 30, Clearfield announced that its revenues increased by 49% year-over-year to a record $38.7 million. Meanwhile, the company’s backlog went up by a whopping 377%, to a record $40.3 million. (Source: “Clearfield Reports Record Fiscal Third Quarter and Nine Month 2021 Financial Results,” Clearfield Inc, July 22, 201.)

Clearfield’s gross profit in the third quarter of 2021 increased by 59% year-over-year from $10.8 million (41.5% of net sales) to $17.1 million (44.2% of net sales).

Its income from operations in the third quarter of 2021 increased by 115% year-over-year from $3.6 to $7.7 million.

Clearfield Inc’s third-quarter net income was $6.1 million, or $0.44 per share. That’s a 104% increase from the third-quarter 2020 net income of $3.0 million, or $0.22 per share.

Thanks to current demand, new government initiatives, and overall industry strength, the company’s management was able to raise its fiscal 2021 net sales guidance to $130.0–$135.0 million, which represents a 42% year-over-year gain at the midpoint.

Clearfield Inc also provided revenue guidance for fiscal 2022 of $150.0–$160.0 million, representing growth of 15%–20% over the projected fiscal 2021 revenue.

Analyst Take

What’s not to love about Clearfield stock?

The company has a strong competitive position in a rapidly growing, multibillion-dollar, fiber-fed broadband industry that has a 20+ year growth period ahead of it.

Clearfield Inc has a solid balance sheet (with no debt) and a 13-year history of profitability and positive free cash flow. The company recently reported record financial results, upped its full-year guidance, and provided a strong outlook for fiscal 2022.