Richardson Electronics Stock Bucks Market Downtrend

With both the S&P 500 and Nasdaq in bear-market territory, it’s not hard to find a beaten-down tech stock with big potential. However, finding a tech stock that's been bucking the downtrend by trading at record levels—and which has tremendous growth potential—is almost impossible right now. This makes under-the-radar play Richardson Electronics, Ltd. (NASDAQ:RELL) so compelling.

Richardson Electronics is a leading power, microwave, and imaging solutions provider that no one seems to be talking about. There aren’t even any Wall Street analysts following RELL stock.

But I certainly am. I last wrote about Richardson Electronics, Ltd. back in October. At the time, Richardson Electronics stock was trading at a record level around $12.29. That wasn’t a big surprise, as the stock market was doing well and was a month away from hitting its own record a level.

It’s been a different story since then. Again, the Nasdaq is in bear-market territory, and until inflation gets under control, there’s every reason to believe stocks will keep trending lower.

RELL stock investors didn’t get that memo, though. On June 28, Richardson Electronics stock hit a new record high of $17.00—for a short-term gain of 38% since I wrote about Richardson Electronics, Ltd. in October 2021.

Since then, RELL stock has pulled back slightly from that record level, currently trading at $15.91. As of this writing, the stock is up by:

• 14% over the last month
• 33% over the last three months
• 30% over the last six months
• 20% year to date
• 95% year over year

In comparison, the Nasdaq is down by:

• Six percent over the last month
• 20% over the last three months
• 28% over the last six months
• 27% year to date
• 22% year over year

There’s no secret to Richardson Electronics stock's success during one of the darkest periods on Wall Street. Richardson Electronics, Ltd. continues to report excellent financial results, including its seventh consecutive quarter of revenue growth.

That momentum should continue. For the fourth quarter of the company's fiscal 2022 (which ended May 28), management announced that the company set its highest new quarterly sales record since 2011. (Source: “Richardson Electronics Sets New Quarterly Sales Record Since 2011,” Richardson Electronics, Ltd.)

“We are extremely pleased with the Company’s performance in the fourth quarter. In fact, we have now had eight consecutive quarters of sequential sales growth with higher backlog demonstrating strong momentum as we head into fiscal year 2023,” said Richardson Electronics, Ltd.'s CEO, Edward J. Richardson. 

Chart courtesy of StockCharts.com

RELL Stock Overview

Richardson Electronics is an electrical components manufacturer and distributor. The company's business segments are Power and Microwave Technologies, Healthcare, and Canvys. (Source: “FY22 Q3 Investor Presentation,” Richardson Electronics, Ltd. April 7, 2022)

The Power and Microwave Technologies segment includes power grid and microwave tubes, power management for alternative energy and fifth-generation (5G) networks, and in-house manufacturing and partnering. These products are used in the renewable energy, power conversion, defense, communications, marine/aviation, industrial, scientific, medical, and semiconductor/plasma equipment markets.

The Healthcare segment, which only started in 2015, creates CT and MRI replacement tubes, diagnostic imaging replacement parts, and CT service training and technical support.

The Canvys segment creates custom display solutions for original equipment manufacturers (OEMs) that are used in health-care, industrial, retail, and transportation applications.

Richardson Electronics, Ltd. has a diverse customer base, with no single customer accounting for more than 10% of the company's revenues. It also has a solid international presence, with approximately 60% of its revenue coming from outside the U.S.

Three of the company’s key customers are General Electric Company (NYSE:GE), Honeywell International Inc (NASDAQ:HON), Deere & Company (NYSE:DE).

Another Great Quarter

For the third quarter of fiscal 2022, which ended February 26, Richardson Electronics announced that its net sales jumped by 22.3% year over year to $55.3 million, with sales growth coming from all three of its business segments. (Source: “Richardson Electronics Reports Third Quarter Fiscal 2022 Net Income of $2.9 Million and Declares Quarterly Cash Dividend,” Richardson Electronics, Ltd., April 6, 2022.)

Richardson Electronics, Ltd.'s third-quarter operating income was $3.6 million, compared to $300,000 in the same prior-year period. The company's third-quarter 2022 net income was $2.9 million, or $0.21 per share, up from its third-quarter 2021 net income of $200,000, or $0.02 per share.

The company’s backlog increased by 20% quarter-over-quarter and 76% year-over-year to $175.6 million.

Richardson Electronics, Ltd. ended the quarter with cash and investments of $39.1 million.

The company also announced that its board of directors declared a $0.06 quarterly dividend, for a yield of 1.6%. The company's dividend is safe, with a payout ratio of just 27.9%.

Strong Preliminary Q4 Results

In June, Richardson Electronics, Ltd. announced its preliminary fourth-quarter 2022 financial results. They included revenue between $60.5 and $62.5 million, representing year-over-year growth between $19.9% and 23.8%.

Richardson Electronics, Ltd.'s sales increased across the company’s three business units for both the fourth quarter and fiscal year due to high demand and successful new product expansion initiatives.

The company's backlog increased in the fourth quarter to $206.2 million from $175.6 million at the end of the third quarter and $110.0 million at the end of the prior year’s fourth quarter.

On a full-year basis, the company's net sales are expected to be between $222.0 and $226.0 million, representing year-over-year growth of 25.5% to 27.7%.

Analyst Take

Richardson Electronics stock is an outstanding small-cap tech play, trouncing the broader market since 2020. The company continues to report wonderful financial results and will soon be officially announcing its eighth consecutive quarter of sales growth, as well as a higher backlog.

Despite the challenging economic environment, Richardson Electronics, Ltd. looks like it will end its fiscal 2022 with high sales figures and improved profitability, setting it up for another winning fiscal year.