BYRN - Byrna Technologies: New Products Could Bring The Stock Price Up

• Byrna is a defense technology company offering solutions for security situations that do not require the use of lethal force.
• Management is already present in well-known e-commerce shops, and it has connections with a significant number of physical stores.
• With so many people trying to sell Byrna’s products, future revenue growth may continue.

Byrna Technologies Inc. ( BYRN ) recently announced that its research teams are working on new launchers. In my view, more products will likely enhance revenue generation. The company also received great financial forecasts from investment analysts, and the guidance is beneficial. There are some risks because BYRN's manufacturing activity is very recent, and many teams were recently created. With that, I believe that more M&A activity could send the stock price north.

Byrna

Byrna is a defense technology company offering solutions for security situations that do not require the use of lethal force.

Byrna's customers include law enforcement and private security customers in addition to individuals, international dealers, and distributors. Considering the list of clients, I believe that the customer base is quite diversified.

Byrna reported sales growth of 154% in 2021, and expects to report sales growth of 36% in 2022. With these figures, I believe that many investors would be interested in the company. Future sales growth is expected to be enhanced by new channels, new markets, and strategic acquisitions. I designed several financial models to understand how fast Byrna could grow.

Future profitability ratios are also improving. Byrna expects to report a target gross profit of 60%-65% and adjusted EBITDA of 30%. I have not used these figures in my models because I believe that they are too optimistic. With that, I believe that investors should know about the Byrna's targets.

With No Debt, New Acquisitions Seem Achievable

As of May 31, 2022, Byrna reported $25 million in cash, $56 million in total assets, and $11 million in total liabilities. Considering the current balance sheet, in my view, Byrna could receive debt to acquire other targets.

Byrna did not report financial debt, so the net debt is actually negative. Accounts payables are the largest liability. Hence, it seems that some providers are financing Byrna's activity.

Expectations From Analysts Are Beneficial

Analysts reported beneficial expectations about Byrna's revenue growth, EBITDA margin, and EBT. We are talking about double digit sales growth in 2022 and 2023, and 24%-12% EBITDA margin in 2023 and 2024. I usually don't disclose what other investment analysts report. However, the numbers are so remarkable that I made an exception in this article.

It is also quite beneficial that net income is expected to be positive from 2023, and free cash flow will likely trend positive in 2024.

E-commerce And New Products Could Enhance Revenue Generation

I believe that the sales and marketing processes of Byrna will enhance sales growth. Management is already present in well-known e-commerce shops, and it has connections with a significant number of physical stores. With so many people trying to sell Byrna's products, future revenue growth may continue.

We sell our products into the consumer market through our Byrna e-commerce store and a network of over 1,300 local, regional and national outdoor and sporting goods stores, either directly or through distributors. We also sell our products through an Amazon ( AMZN ) storefront. Source: 10-k

Byrna is signing agreements with popular national news providers, and is working with key influencers. According to the annual report, campaigns in the media significantly increase the orders online. In my view, further campaigns will likely help management sell more. Finally, under this case scenario, I assumed that Byrna will have cash to finance more campaigns:

Our current marketing strategy includes engaging key influencers in relevant markets to highlight the benefits of our security solutions to their respective networks of followers. Source: 10-k

The company is working on new launchers, the Byrna LE and Byrna PE. With more efficient utilization of CO2 and other innovations, new products will likely bring further revenue growth. The company discussed these new products in a recent report:

Our design team is comprised of experts in the fields of mechanical design, precision manufacturing and CO2-powered propulsion. We are currently focused on executing the commercial introduction of a series of new launchers, including the Byrna LE and Byrna PE. Source: 10-k

The global guns and accessories market is expected to grow at a CAGR of 6% from now until 2027. Under normal circumstances, I believe that Byrna will likely experience sales growth close to the market growth.

The global guns and accessories market size was USD 6.14 billion in 2019 and is projected to reach USD 9.33 billion by 2027, exhibiting a CAGR of 6.15% during the forecast period. Source: Fortune Business Insights

With sales growth around 6% from 2024 to 2026 and an EBITDA margin of 6%-24%, I obtained 2026 EBITDA of $16 million and 2026 non operating profit after tax of $9 million.

In my CAPM model, I included a beta of 1.22, cost of equity of 10%, and cost of debt of 2.8%. My results include a discount of 7.7%. Also, with an exit multiple of 12x, which is close to the sector median, the implied price would be $9.4-$9.5 per share.

Byrna Could Be Worth $5 Under Unlikely Circumstances

The company's manufacturing history is not that long. Many executives were recently hired. In the last five years, Byrna created many new teams, and acquired other companies. In my view, rapid growth involves risks. New teams of personnel may get some time to work properly. Besides, management may find new troubles in manufacturing new products that they may have not expected.

We have a limited operating history on which you can evaluate our business. Although our corporate entity has existed since 2005, we have only been manufacturing and selling the Byrna launchers, our largest source of revenue, since April 2019. Moreover, we have introduced several new products during 2021, including product lines acquired through acquisitions and sourced from third-party manufacturers with whom we had no prior experience. Source: 10-k

Byrna also hired a significant number of employees very recently. The increase in the headcount is quite impressive. I doubt that Byrna will be able to report the same headcount growth in the future. Without similar headcount growth, in my view, sales growth may decline. Notice that Byrna reported triple digit sales growth in the last two years. Seeing triple digit sales growth again may be unlikely.

We have experienced rapid growth in our headcount and operations over the last several years, integration of which will continue to place significant demands on our management and our operational and financial infrastructure. Source: 10-k

Byrna is subject to significant risks from product liability claims. We are talking about products that are quite dangerous. Misuse could have dramatic consequences. Lawsuits against the company could lead to fines and brand destruction. As a result, Byrna could lose valuation in the market.

Our products are used in activities and situations that involve risk of personal injury. Our products expose us to potential product liability, warranty liability, and personal injury claims and litigation relating to the use or misuse of our products, including allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product or activities associated with the product, negligence, and strict liability. Source: 10-k

Third-party suppliers account for between 10% and 15% of the components used by Byrna to produce certain products. If Byrna does not find alternative suppliers, supply chain issues could lead to declines in production or decreases in the free cash flow margin. Byrna discussed these risks in a recent report:

We rely on certain third-party suppliers for our business, including sole source suppliers. Sole source suppliers account for approximately 10-15% of the components in our Byrna SD as well as certain accessories. Our future operating results depend upon our ability to obtain timely delivery of a sufficient amount and a reliable quality of all components on commercially reasonable terms. Source: 10-k

If we assume a decline in sales of -20% and sales growth around 6%, 2026 net sales could stay at around $52 million. My results also include 2026 EBITDA of $6 million and a 2026 non operating profit after tax of $3 million.

Also, with a CAPM model that includes a discount of 10% and an exit multiple of 10.5x, the discounted terminal value would be $50 million. If we subtract the net debt of -$25 million, the implied price would be $5 per share.

With Sufficient M&A Transactions, Byrna Could Be Worth $12.3 Per Share

If we assume that Byrna acquires other targets, I believe that management could report sales growth of 8.5% per year. If we also assume an EBITDA margin between 6% and 24%, EBITDA would range between $4 million and $18 million.

If we include a discount of 5.5%, a 2026 exit multiple of 15x, and net debt of -$25 million, the fair price would be close to $12.3.

Conclusion

Byrna announced that the research team is working on new launchers, which will likely help enhance revenue generation in the coming years. Also, with campaigns in the media and many sellers online, Byrna seems to have enough presence and representation in the US markets. The fact that estimates from investment analysts and the company are beneficial is also quite encouraging. In my view, the fair price is somewhere between $9.4 and $12.3. More M&A operations will likely send the share price to higher marks.

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