What happened
Shares of Richardson Electronics (RELL 1.98%) were up 22% as of 12:11 p.m. ET on Thursday after reporting better-than-expected earnings results. For the fiscal first quarter ending Aug. 27, net sales were up 26% year over year. The company also saw an uptick in gross margin, which more than doubled earnings per share over the year-ago quarter.
Despite the business reporting its best sales in over 10 years in the previous quarter, the stock has fallen 22% this year on worries over inflation and a slowing economy. But management's outlook for the year ahead might be shifting market sentiment.
NASDAQ: RELL
Key Data Points
So what
It was the company's ninth consecutive quarter of growth. Moreover, margins are steadily improving due to consistent production and avoiding supply issues that have plagued other companies this year.
Richardson sells engineered replacement parts, tubes, and other components across healthcare, aviation, military, marine, industrial, and alternative energy. It recently expanded into green energy solutions, which management believes will help maintain sales momentum into next year.
Now what
Richardson's backlog is healthy, and management reported there are a number of projects in the engineering stage to support continued growth. The company received new orders from existing and new medical equipment manufacturers in the quarter.
Analysts expect sales to increase nearly 14% this year, before increasing another 12.6% next year. With those growth expectations, the market is likely sniffing out a bargain. The stock traded at a price-to-earnings ratio of 13.5 times expected earnings entering the quarterly release. It is now trading at a multiple of 17.6 times expected earnings, which is still not expensive for a growing business.
