Ultralife Corp. (NASDAQ:ULBI) is a stock we’re bullish on. We think ULBI stock could head much higher going forward.
Headquartered in Newark, NY, Ultralife engages in designing, manufacturing, installing, and maintaining power and communications systems. The company has two business segments: “Battery & Energy Products” and “Communications Systems.”
The Battery & Energy Products segment offers various lithium batteries and battery systems, such as thin lithium manganese dioxide batteries, lithium 9-volt batteries, lithium ion cells, multi-kilowatt module lithium ion battery systems, military and commercial battery charging systems, and related accessories.
The Communications Systems segment of Ultralife offers communications systems and accessories, such as radio frequency amplifiers, amplified speakers, integrated communication systems for fixed or vehicle applications, comprising vehicle adapters, power supplies and cables, and equipment mounts.
Ultralife Corp. sells its products under the “Ultralife Batteries,” “ACCUTRONICS,” “ABLE,” “ACCUPRO,” “ENTELLION,” “Lithium Power,” “McDowell Research,” and “AMTI” brands. (Source: “Ultralife Corporation (ULBI),” Yahoo! Finance, last accessed December 19, 2019.)
These products are sold directly and through original equipment manufacturers and industrial and defense supply distributors.
Ultralife Corp.’s Fundamentals
Why are we so bullish on Ultralife stock?
First of all, the fundamentals remain solid. Not too long ago, the company reported its financials for the third quarter of 2019. And there were encouraging data across the board.
Revenue came in at $27.5 million, an increase of 35.2% year-over-year. Net income for the quarter was $900,000, or $0.06 per share. In the same period a year ago, net income was $1.4 million, or $0.09 per share.
On an adjusted basis, earnings per share were $0.07 for the third quarter of 2019, compared to $0.09 for the third quarter of 2018.
Michael D. Popielec, president and CEO of Ultralife, explained the financials further:
Third quarter revenue increased 35% boosted by the contribution of Battery & Energy Products’ recent acquisition, Southwest Electronic Energy Corporation (‘SWE’), and including 62% higher Communications Systems sales. These gains offset a decline in Battery & Energy’s core government/defense sales, reflecting timing of orders. Despite strong revenue growth, profitability was negatively impacted by late cycle product changes and rework in fulfilling a major award for Communications Systems, and the transition of several Battery & Energy new product development projects to high volume production. In addition, we continued to invest in engineering resources to support new product development projects that are designed to capture new diversified revenue streams.
(Source: “Ultralife Corporation Reports Third Quarter Results,” Ultralife Corp., October 31, 2019.)
Liquidity remains solid at Ultralife, too.
The company ended the third quarter of 2019 with current assets of $69.0 million and current liabilities of $16.3 million. This gives Ultralife Corp. working capital of $52.8 million.
Its debt load is extremely low, too: just $16.25 million.
ULBI Stock Valuation
Other than the financial data, we are also paying close attention to the valuation of Ultralife stock. It continues to look undervalued.
Here’s an example to give you some idea of how cheap this stock really is.
Currently, ULBI stock trades at a price-to-book ratio of 1.15. This means that each $1.00 of equity at the company is being priced at $1.15 by investors.
Here’s the thing: the industry that Ultralife Corp. belongs to has an average price-to-book ratio of 2.69. (Source: “Ultralife Valuation Comparisons,” CSI Market, last accessed December 20, 2019.)
According to this ratio alone, Ultralife stock is trading 57% below the industry average.
We know from experience that, over time, companies usually tend to get similar valuations to the industry’s average. So, if ULBI stock follows the same pattern, then it would have to go up a lot until it gets a valuation relative to its peers.
Mind you, it’s not just the price-to-book ratio saying Ultralife stock is undervalued; other valuation measures also suggest this company is selling for pennies on the dollar.
ULBI Stock Chart
Lastly, look at the Ultralife stock price chart.
Chart courtesy of StockCharts.com
Since early 2016, ULBI stock has done something interesting each time it touched its 200-week moving average: it bounced higher.
At the moment, Ultralife stock is trading awfully close to its 200-week moving average. Will it bounce? It’s possible.
Dear reader, at the moment, Ultralife Corp. has a market capitalization of about $117.0 million, and no Wall Street analysts are following this company.
Here’s a bold statement: in the next few quarters, we could be looking at ULBI stock trading at $7.43, and saying “That was cheap!”
We will not be shocked if Ultralife stock doubles in the near future.