Richardson Electronics, Ltd.: Small, Ignored Tech Stock Ripping Broader Market

Richardson Electronics Stock Up 35% in One Month on Strong Financials

The most popular tech stocks hog the spotlight, but if you look hard enough, you’ll find some of the best-performing tech stocks sitting quietly in the shadows. And frankly, those are the kind of stocks you want to find: truly overlooked tech stocks that even analysts haven’t quite tapped into yet.

One of the most unjustly overlooked tech stocks is Richardson Electronics, Ltd. (NASDAQ:RELL).

A leading global provider of power, microwave, and imaging solutions, Richardson Electronics has been quietly blowing the broader market away all year. As of this writing, RELL stock is up by:

  • 35% month-over-month
  • 66% over the last three months
  • 167% year-to-date
  • 185% year-over-year

Richardson Electronics stock came by these gains honestly. How could it not? It’s not as if tech stocks did well during the September slide. And it’s not as if the Nasdaq has been jumping in October either.

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RELL stock has been doing its own thing, ripping higher on wonderful first-quarter fiscal 2022 results.

Richardson Electronics, Ltd. swung to profitability, achieving its highest level of quarterly sales in 11 years and its best quarterly earnings per share in nine years. The company has a solid cash position and no debt, and its management team has provided a bright outlook.

To boot, this small tech stock, with a market cap of just $159.0 million, also provides a two percent dividend.

Chart courtesy of StockCharts.com

RELL Stock Overview

Richardson Electronics is a components manufacturer and distributor. The company’s three business units are Power and Microwave Technology, Canvys, and Healthcare. (Source: “Corporate Overview: FY21,” Richardson Electronics, Ltd., last accessed October 19, 2021.)

The Power and Microwave Technology unit involves power grid and microwave tubes; power management for alternative energy and 5G; in-house manufacturing and partnering with leading technology suppliers; and global engineering and design support.

These products are used in the renewable energy, power conversion, defense, communications, marine/avionics, industrial, scientific, medical, and semiconductor/plasma equipment markets.

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

The Canvys unit is a global manufacturer that specializes in creating 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 its revenues. The company has a significant international presence, with roughly 60% of its revenue generated outside the U.S.

Based in Illinois, Richardson Electronics, Ltd. has more than 60 sales offices and stocking locations in 24 countries. It has international hubs in Illinois, South Carolina, Hong Kong, Singapore, The Netherlands, and Germany. The company also has satellite stocking locations in Brazil and Shanghai.

Some of the company’s key customers are Rockwell Automation (NYSE:ROK), Honeywell International Inc (NASDAQ:HON), Garmin Ltd. (NASDAQ:GRMN), Deere & Company (NYSE:DE), and Medtronic PLC (NYSE:MDT).

Great Q1 2022 Results

For the first quarter of fiscal 2022, ended August 28, 2021, Richardson Electronics announced that its revenue increased by 38.4% year-over-year and 6.4% sequentially to $53.7 million. (Source: “Richardson Electronics Reports First Quarter Fiscal 2022 Net Income of $2.6 Million and Declares Quarterly Cash Dividend,” Richardson Electronics, Ltd., October 6, 2021.)

Its first-quarter 2022 operating income was $2.8 million, compared to a first-quarter 2021 operating loss of $600,000.

The company reported net income for the first quarter of fiscal 2022 of $2.6 million, or $0.20 per share, compared to a net loss of $1.1 million, or $0.09 per common share, for the first quarter of fiscal 2021.

Richardson Electronics, Ltd. ended the quarter with cash investments of $36.4 million, versus $43.3 million as of May 29, 2021 and $42.5 million as of August 29, 2020. The company’s use of cash was related to higher working capital to support sales growth.

Edward J. Richardson, chairman and CEO, commented, “Our strong first quarter performance is a result of growth initiatives that are starting to take hold and we successfully navigated unprecedented global supply chain and logistics challenges.” (Source: Ibid.)

He added, “…we believe fiscal year 2022 will be a strong year of sales growth and improved profitability.”

Richardson Electronics, Ltd. Announces Dividend

Richardson Electronics also announced in early October that its board of directors declared a $0.06 quarterly dividend, or $0.24 on an annual basis, for a yield of two percent. (Source: Ibid.)

The dividend is more than safe, since the payout ratio is just 57.1%. That’s far lower than my 90% threshold, thus providing the company with plenty of financial wiggle room.

Analyst Take

Richardson Electronics, Ltd. is a fabulous tech stock that recently reported excellent first-quarter results and a solid balance sheet.

The company’s momentum is expected to continue throughout fiscal 2022, with improving sales and profitability. This combination should help propel the price of Richardson Electronics stock even higher and allow it to continue providing investors with reliable dividends.