Year-to-date, TESSCO Technologies Inc. (TESS) has underperformed the Technology Select Sector SPDR Fund (XLK) by about 30%. However, it seems that the stock has the resources to recover the gap. Thus, I am bullish on the stock.
Based in Hunt Valley, Maryland, this tech company distributes base station infrastructure and network systems products -- combined with various services including test, maintenance, reparation, and installation -- for the wireless infrastructure environment in the United States, and all over the world.
Customers include wireless infrastructure owners, device and technology manufacturers, private and public providers of telecommunication services, and some retail stores. (See TESS stock charts on TipRanks)
Recent Quarterly Results
The COVID-19 crisis caused severe shortages in the global supply of electronic components. However, the company was still able to increase Q1 FY 2022 revenues by 9% year-over-year to $105 million.
The company also recorded higher sales bookings. Gross profit rose to $19.7 million, a 19.4% year-over-year increase, as gross margin increased to 18.8%. Gross margin was 17.1% in the first quarter of FY 2021.
TESSCO's adjusted EBITDA loss of $1.1 million, and net loss of $2.2 million were both improvements year-over-year. This followed a change in strategy for the company.
New Strategy
In December 2020, TESSCO took a milestone decision to leave the retail business of mobile device accessory products, and focus completely on commercial business, in order to boost profit margins.
TESSCO's operating activities now look better positioned to capitalize on the adoption of more advanced technologies, such as 5G. If things go as planned, shareholders could see stock prices rise steadily in the coming years.
Wall Street’s Take
The stock has a TipRanks Smart Score of 4 out of 10, indicating that the stock returns are likely to perform in line with the overall market.
This is driven by a insider buying activity worth $30,100 over the last three months.
Summary
This stock has underperformed so far this year, probably because the market didn't like the decision to suspend quarterly dividends in order to strengthen cash reserves during the COVID-19 pandemic.
The company has adopted a new strategy that has already started to deliver in terms of better revenues and gross profit margins.
Its income statement is expected to improve further, until the bottom line switches to a net profit again. Should this happen, the share price will have its catalyst to recover.
Disclosure: On the date of publication, Alberto Abaterusso did not have any positions in the securities mentioned in this article.
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