OFLX - Omega Flex: Becoming More Appealing But Valuation Still Relatively High

2024-01-22 11:59:46 ET

Summary

• Revenues increased in Q3 2023 after four quarters of consecutive declines.
• Margins also improved, and the company is highly profitable.
• The balance sheet is very robust and the company is debt-free.
• The share price is ~60.5% down from all-time highs, but a high valuation suggests averaging down is the wisest way to invest.
• This represents a good opportunity to add shares to any conservative, long-term dividend growth oriented portfolio.

Investment thesis

In August 2023, I wrote an article about Omega Flex (OFLX) as a significant decrease in residential construction projects, as well as a more challenging macroeconomic landscape, caused a significant volume reduction in 2022 and H1 2023. This not only caused a significant revenue decline (especially in Q2 2023) but also significant margin deterioration, which was intensified by inflationary pressures. Despite this, the (relatively slow but solid) expansion of its product portfolio allowed a steady increase in revenues over the years, and the share price decline of 56% also reflected the impacts of inflationary pressures, supply chain issues, and a stricter financing environment, which in my opinion are temporary headwinds due to their direct link to the current macroeconomic context....

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