Orion Energy Systems’ cash flow has grown by 178.6% since Q3 of 2015 yet the stock price continues to drop presenting an opportunity for value investors to purchase.
Currently, Orion Energy Systems is undervalued by 29.71% based on discounted cash flow analysis.
Fundamental analysis shows Orion Energy Systems has a lot of room for growth and negative sentiment is not warranted .
The company is reinvesting into product development and positioning itself for future growth.
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Orion Energy Systems ( OESX ) is currently undervalued, and market sentiment does not accurately reflect the current opportunity this stock presents. Based on the discounted cash flows of the company and the leadership’s plan to reinvest capital into the company, OESX is a buying opportunity and the opportunity continues to grow as the stock price drops.
I believe the company is fairly valued at $4.72 per share based on the current and projected free cash flows the company will generate. Based on the leadership’s plan to reinvest into the company, this fair value could prove to be very conservative moving forward. Company Overview
Orion Energy Systems is a turnkey provider of LED lighting and controls systems. Currently, the majority of Orion Energy’s products are manufactured at their production facility located in Manitowoc, Wisconsin. As the LED and related Internet of Things market continue to evolve, Orion Energy will likely begin sourcing products and components from third parties. The company targets three main market segments: commercial office and retail, area lighting, and industrial applications.
Recently, Orion Energy has found success in offering project management services to national account customers to retrofit their multiple locations. This has provided additional revenue as they control the entire process as described in their 10Q from September : “initial site surveys and audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration.” Fundamental Analysis
Orion Energy Systems is taking a pummeling in the market. From a high of $11.67 in February 2021 to a recent $3.62 in November 2021 the stock has lost nearly 69% of its value in just under a year. Meanwhile, the business seems to be doing well, if not thriving. While the carnage may continue in the stock price, the business is adding to its revenues and management has a clear strategy for growing the business and investing in further technologies and infrastructure to facilitate growth.
According to the September 10Q filing, Orion Energy plans “to pursue the expansion of [the company’s] IoT, ‘smart-building’ and ‘connected ceiling’ and other related technology, software and controls products and services.” Orion Energy currently holds $62.5 Million in short-term assets and only $31.86 Million in short-term and long-term liabilities. It paid down all of its long-term debt as of the beginning of 2021 and has continued to increase its revenues and free cash flow over the past 5 years. In 2016 the company had negative cash flows and currently has grown its free cash flow each year until it had positive cash flow in the middle of 2019. Covid disrupted this gradual progress but the company is currently producing $11 Million in free cash flow with a peak of $19.4 Million in 2020. Its earnings and revenue numbers have shown a similar picture of gradual growth over the last five years.
What this means to investors is they currently own a free cash flow generative company with no debt and a plan to grow the company through its currently profitable business model. This company has managed its financials very conservatively and this provides a level of security to investors. As Orion Energy Solutions continues to grow, it is reasonable that cash flows will grow and valuations, as a result, will also grow. Future Outlook
The company plans to execute capital expenditures to grow its infrastructure and invest in further technologies. While this will have a negative impact on free cash flow in the near term, it may profit heavily from this investment in the years to come. As the company continues to grow its customer base in North America, the additional revenues may help in providing a buffer from these capital expenditures which could shield its cash flows from […]