Will This Phoenix Rise From the Ashes?

By Anders Bylund | More Articles
August 24, 2010 | Comments (1)

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Daktronics (Nasdaq: DAKT ) is soaring to high heavens today. The expert in building display screens for uses outdoors crushed every expectation in this morning's first-quarter report, and share prices are up by more than 17%.

The $100.5 million in revenue was an 11.5% drop year-over-year -- but earnings improved from $0.03 per share to $0.06 per share, and the analyst crowd expected much worse. Even better, free cash flows expanded from $3.8 million to $11.9 million, or nearly five times the reported net income. This is a very Foolish way to run a business, not to mention an effective way to keep tax payments low. And the backlog of unfilled orders stands at $144 million, which is a 13% sequential increase and a 27% year-over-year boost. This means there's plenty of fresh revenue coming Daktronics' way in the coming quarters.

Three and a half years ago, I warned you this stock was way overheated after returning more than 25 times your investment in only ten years. The share price stood at four times trailing sales and 62 times earnings; Daktronics was ripe for a fall. Even after today's stellar gains, Daktronics is worth about 24% of what it was back then. The price-to-sales ratio now stands at 0.98.

The company still has no pure rivals to speak of. Its largest challenge comes from conglomerate Mitsubishi, but also faces off against piecemeal big-screen efforts from the likes of Panasonic (NYSE: PC ) and Toshiba. Sony (NYSE: SNE ) apparently didn't like the market much either, as it has moved away from competing with Daktronics. Daktronics might see more challenges in its transportation sign business, but it's ruling the roost on bigger installations.

Standard & Poor's can't find any direct rivals either, but has to resort to FLIR Systems (Nasdaq: FLIR ) and Orbotech (Nasdaq: ORBK ) for comparison purposes. That's not even close, because Daktronics does neither thermal imaging systems nor the advanced flat-panel display inspection seen at Orbotech.

The moat here is intact, and perhaps we've seen the worst of Daktronics' Icarian fall. Would you buy this peerless company today? Go tell it in the comments below.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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Report this Comment On August 24, 2010, at 8:46 PM, MrArbitrage wrote:

As I wrote on February 23, 2009
“…THE KEY: The reason why I love this company is because they are the undisputed leader in global industry in its infancy. You may have seen one of their billboards over the past year if you have driven through any major cities. They REVOLUTIONIZE a primitive industry. Currently there are millions of old billboards throughout the US that require people to climb scaffolds and wall paper these outdoor billboards by hand. That is expensive. There are the costs of making the actual material, transporting it and the man hours to hang it.
The digital billboards by DAKT eliminate that archaic method of outdoor advertising. The technology is impressive. It’s like driving down the road and seeing a high def television with active advertising. I see the future of driving the highways of the world being similar to surfing down the “Information Super Highway”. When we surf the Internet, the “billboard” advertising is targeted at us with a certain amount of intelligence. It’s not just blanket advertising. DAKT’s digital billboards won’t quite be able to pinpoint ads to the degree that the Internet does but I believe it will allow for them to change the ads to sponsors more appropriate for certain traffic times and locations. This will open up many new doors for those who sell ads to obtain more revenue from one piece of real estate and to offer a more dynamic and valuable presentation for advertisers.
Subsequently, Daktronics also manufactures those gigantic screens you see at sports arenas and stadiums. You also probably witnessed the capabilities of their product during the inauguration of Barack Obama as they were set up throughout Washington DC. I don’t mean to minimize these segments because these venues are also a substantial part of their revenue. It’s just that I see the most exciting part of the business to be in the outdoor advertising. Next time you take a road trip, start paying attention to the extraordinary quantity of primitive billboards with spotlights on them. Think about the man hours required to change the ads on them for new sponsors. Think of what a small percentage -the many you have seen- are of the total number nationwide. Than think globally because DAKT is selling them globally and they are the leader by far in this industry.
DAKT is currently trading at a total market cap of $319 million (at the current stock price of $7.90 per share). I believe the market for their products will drive this company to substantially higher revenues and earnings in the coming years. I believe DAKT will become a company with a multi-billion dollar market capitalization. It is difficult to pinpoint a specific top for a company well positioned in this auspicious industry. I’m not a technical analyst but I’m sure there will be plenty of ups and downs given the economy; however, my 5 year target for this stock would be in the neighborhood of $125.00 (not adjusting for stock splits of course)…”
MrArbitrage
http://boards.fool.com/Message.asp?mid=27464408

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