2023-03-24 09:40:42 ET
Summary
- TGLS posted solid FY22 and Q4 FY22 results with a significant increase in revenues and net income.
- A vertically integrated business model helped them to tackle supply chain challenges.
- The management has provided optimistic revenue guidance for FY23, and in my view, they are undervalued.
- I assign a buy rating on TGLS stock.
Tecnoglass ( TGLS ) manufactures, designs, and installs architectural systems for the global residential and business construction markets. They provide low emissivity, thermo-acoustic, silk-screened, and digital print glass products. Aside from that, they sell aluminum goods that are used to make architectural glass elements like windows and space dividers. Additionally, it provides automatic doors, hurricane-proof windows, internal dividers, and stick façade systems. They recently posted their FY22 and Q4 FY22 results. In this report, I will analyze its financial performance and give my views on its future growth potential. I believe they are undervalued with a lot of growth potential. Hence I assign a buy rating on TGLS.
Financial Analysis
TGLS recently posted its FY22 and Q4 FY22 results . The revenue for FY22 was $716.5 million, a rise of 44.2% compared to FY21. I believe the main reason behind the rise was the management's continued focus on the single-family residential segment. The revenue from the single-family residential segment was up by 73% in FY22 compared to FY21. I think attractive pricing, new innovative products introduced by them, and the strong demographic presence of the company in Southeast U.S. were the main reason behind an increase in revenues from the single-family residential segment. The net income for FY22 was $156.4 million, a rise of 128.5% compared to FY21. I believe the main reason behind the rise was a favorable FX trend and better pricing strategies. I am amazed at how consistent the company is, and it has constantly been improving and reporting solid financials for the last three years. Their financial performance in FY22, in my opinion, was quite excellent.
The revenue for Q4 FY22 was $211.1 million, a rise of 60.1% compared to Q4 FY21. I think the company's increased commercial activities and market share gains were the primary causes of the increase. The rise in revenues in Q4 FY22 was also attributed to increased demand in the single-family residential segment. The revenues from the single-family residential segment were up by 59% in Q4 FY22 compared to Q4 FY21. The net income for Q4 FY22 was $55.1 million, a rise of 177.7% compared to Q4 FY21.
Technical Analysis
TGLS is trading at the level of $37.5. The stock looks very bullish; it recently broke out of a resistance zone of $35 and created a new all-time high of $44. After giving a breakout, it is now coming to retest the level of $35. If, after touching $35, it forms a green candle, one can make fresh entries into the stock because I believe it might gain fresh momentum after the retest, and the stock might aim for a new all-time high. I think it has the potential to reach $50 levels in the coming times.
Should One Invest In TGLS?
TGLS is in no mood to slow down; it has been on a significant growth trajectory for the last three financial years. Their revenues and net income have grown significantly, and if we look at the revenue estimate for FY23, it is around $817.9 million, which is 14.1% higher than FY22 revenue. There are a number of factors why I think they might be able to meet the revenue goals. Their vertically integrated business model helped them in 2022, and I think it will continue to help them in 2023. The vertically integrated business model has helped them to tackle supply chain challenges and inflation. In addition, their delivery time has improved, and currently, it is well below the industry's average delivery time thanks to the vertically integrated business model. The management is also expanding its business in Southeast and South Central U.S., due to which they are and might continue to dominate in the single-family residential market. To increase its market share, they have opened showrooms in New York City and South Carolina and are planning to open showrooms in Arizona and Texas in 2023. Additionally, they had a record backlog of $725 million in Q4 FY22, a rise of 24% compared to Q4 FY21. I think these factors separate them from their competitors, and I believe they will continue to do better in the coming times.
Now looking at its valuation. I will use P/E and EV / EBIT ratios to judge its valuation. The P/E of a company is calculated by dividing the stock price by the annual EPS. It has a P/E ((FWD)) ratio of 9.63x compared to the sector ratio of 16.44x. It has an EV / EBIT ((FWD)) ratio of 6.81x compared to the sector ratio of 14.37x. After looking at both ratios, I believe they are undervalued, and the valuation, in my opinion, is justified. Even after moving up by 40% in the last one year, they have provided optimistic revenue guidance. They are confident that they will maintain the growth rate in the future, so I think the valuation is justified because high-growth companies generally trade at a lower premium than their peers.
Risk
The larger markets for new buildings, repair, and remodeling exert cyclical market pressures on the architectural glass sector. These bigger markets may then be impacted by unfavorable economic changes, such as demographic trends, employment levels, interest rates, commodity prices, access to credit, consumer confidence, and shifting market demands and trends, like alterations in consumer preferences and architectural trends. Any future downturn or other unfavorable market conditions could adversely affect the company's balance sheet because margins could drop due to a general decline in demand for its goods.
Bottom Line
They are on a significant growth trajectory and continue to impress by posting solid financial results when there were inflation and supply chain challenges. They tackled the challenges, and I expect they might continue to do well financially. Even after moving up by more than 40% in the last one year, I believe there is still a lot of room left because price follows profit, and they are fundamentally solid. In addition, they are undervalued compared to their peers, so I think this is a great buying opportunity. Hence, I assign a buy rating on TGLS.
For further details see:
Tecnoglass: The Rally Isn't Over Yet