BOOM - DMC Global: Lots Of Upside If Macro Stabilizes
2024-06-06 06:39:54 ET
Summary
- DMC Global's stock is pressured due to their oil and gas exposure, debt risk, and macro sensitivity, which is reflective in year-over-year results.
- While DynaEnergetics is posting stable results, Arcadia's construction exposure is showing continued softness.
- While there are ample risks, most notably debt, considering that both segments have decent competitive positions, today's price offers upside should the macro stabilize.
Introduction
DMC Global ( BOOM ) trading in the low-$11/share range is valued such that even a modest improvement in economics results in a fundamentally-justifiable share price that’s materially higher than where they’re trading today. On the other hand, it’s cheap for a reason. One risk is that their oil and gas exposure constraints the FCF multiple and thus, limiting near-term upside. The second (fundamental) risk is their debt. And the third - also fundamental - risk is their macro-sensitivity. While I think today’s trends point to a future where these risks don’t end up materializing as an issue, randomness exists which thus creates scenarios where investors can lose a lot of money.
DynaEnergetics: Stable Results
DynaEnergetics posted sales of ~$78M in Q1, down 5% from ~$82M posted in Q1 last year (2023), although up 4% from the $75M posted in Q4. My understanding is there’s not much seasonality for Dyna, except for Q3, which tends to be a slower quarter, and specifically for their international customers. It’s hard to corroborate this precisely, however, as the last few years have been volatile given price-timing and end-market recovery, and 2019 isn’t totally representative given similar end-market dynamics and a new product rollout at the time that was gaining material traction ( DynaStage ). But the bigger point here then is that Q1 wasn’t all that bad of a quarter on a seasonally-adjusted basis considering the sequential growth. Just as a cross-reference, Q4 sales were down 3%, relatively similar to what they’re posting on a year-over-year basis today, so sales are trending relatively stable....
DMC Global: Lots Of Upside If Macro Stabilizes