This Little-Known Company Could Be Huge
Frankly, I’m a bit puzzled why Clearfield Inc (NASDAQ:CLFD) stock continues to get overlooked.
The 5G revolution has already begun, and everyone is searching for the next soaring 5G stock. But the mainstream financial media keeps talking about the big-name tech stocks we are all too familiar with. In fact, I don’t recall seeing Clearfield stock mentioned by any outlet in months.
Yet CLFD stock could be one of the most lucrative 5G plays on the market.
Allow me to explain.
Headquartered in Minneapolis, MN, Clearfield Inc designs, manufactures, and distributes fiber-optic management, protection, and delivery products for communication networks.
The company’s “fiber to anywhere” platform serves the unique requirements of leading incumbent local exchange carriers, competitive local exchange carriers, and cable TV companies. The platform also caters to the needs of the utility/municipality, data center, enterprise, and military markets.
While Clearfield stock isn’t a big-name stock—the company has a market capitalization of about $510.0 million at the moment—it runs a sizable business. The company deploys more than one million fiber ports every year.
5G wireless networks need fiber, and Clearfield Inc is well positioned to bring its fiber management expertise to the 5G era.
However, because of the COVID-19 constraints, the deployment of 5G solutions into the access part of the network has been delayed, and that has impacted Clearfield’s business. In the second quarter of Clearfield’s fiscal year 2021, which ended March 31, the company’s sales to its Tier 1 national carrier market actually declined 42% year-over-year. (Source: “Clearfield Reports Record Fiscal Second Quarter and Six Month 2021 Financial Results,” Clearfield Inc, April 22, 2021.)
That said, the company still churned out some very impressive growth. For the reporting quarter, Clearfield generated $29.7 million in net sales, representing a 45% increase year-over-year. Its gross profit soared by 59% from a year earlier to $12.9 million. And the company’s order backlog more than doubled year-over-year to $19.2 million.
Note that the company achieved this kind of growth without having 5G as a major catalyst. So once the deployment of 5G solutions picks up, its growth should only accelerate.
In the earnings conference call, Clearfield Inc’s president and chief executive officer, Cheri Beranek, said, “As we have previously communicated the global pandemic has stalled the introduction and training of our new technologies into the Tier one market. As 5G deployments into the access network increase, we are optimistic for increasing net sales among Tier 1 markets moving forward.” (Source: “Clearfield, Inc. (CLFD) CEO Cheri Beranek on Q2 2021 Results – Earnings Call Transcript,” Seeking Alpha, April 22, 2021.)
Clearfield has been running a fast-growing business for years. But this fiscal year could be a special one. In particular, management expects the company to earn net sales of $120.0 to $125.0 million in fiscal 2021. At the midpoint, that would mark a year-over-year improvement of 32%.
Take a look at the chart below. It plots the company’s net sales over the past four years and the midpoint of its guidance for the current fiscal year.
(Source: “Fiscal Q2 2021 Earnings Call FieldReport,” Clearfield Inc, last accessed May 21, 2021.)
It’s pretty clear that the growth in fiscal 2021 is on track to be faster than in previous years.
Lastly, even though CLFD stock is a relatively small player compared to other 5G stocks, the company is profitable. Clearfield earned net income of $3.6 million in its most recent quarter, and it’s projected to turn at least 12% of its net sales into profits for the current fiscal year.
Looking back, you’ll see that Clearfield has been generating profits and positive free cash flow for 13 consecutive years.
Here’s the bottom line: Clearfield Inc is an under-the-radar company that has already been delivering a solid financial performance, and 5G should take things to the next level.
For 5G stock investors, Clearfield stock deserves a serious look.