- A 900% revenue increase in their last quarter, over the same period one year ago, has gone completely overlooked at Solbright Group (SBRT), and gross profits have never been higher
- SBRT provides energy management and solar PV services/hardware for commercial facilities and municipalities. After a 2017 acquisition, sales are significantly higher, and the company is poised to capitalize on the growing market for energy efficient retrofitting
- The stock could re-value rapidly higher from its current Price/Sales ratio of only 1X. Similar companies are valued at 1.5 to 2X, which would value SBRT at 200% or more of today's prices
Sales have increased significantly in the last year at little Solbright Group Inc (SBRT), and this month the company posted yet another big quarter. Revenue increased by 900% in their fiscal third quarter over the same period one year ago.
But few investors have taken notice of the big changes at this small company. These momentuous top-line results are a result of a transformative acquisition last year, when the company bought out a mid-Atlantic solar installer and brought them into the Solbright Group fold. The market has yet to catch on to the growth at this small company, and the fact that the solar acquisition provides a seamless funnel for the company's long-time technology solutions business.
Solar has seen improved price action in the last few months, with companies like First Solar, Inc (NASDAQ: FSLR) and VivoPower (NASDAQ: VVPR) rallying recently. Despite new tariffs on overseas imports, Solbright appears to be doing fine. The stock is significantly undervalued based on a look at peer companies in the space, and shares in this unknown stock could rally in 2018 as the business blossoms.
Win-Win, Solbright Helps Businesses Save Money
Solbright provides energy conservation services to commercial operators and buildings in the U.S., including energy consumption assessments and recommendations, as well as acting as the general contractor for light-emitting diode retrofits, oil-to-natural gas boiler conversions, and solar panel installations. Their core competency is in installing and maintaining smart "Internet of Things" (IOT) infrastructure for facilities. Within facilities, their hardware and software can be placed on machines, lighting, and HVAC systems to monitor and improve their energy usage. In a nutshell, the company is tackling the "Industrial" IoT head on by accessorizing and implementing facilities, businesses, and even municipalities with smart sensors to improve energy efficency and lower costs.
Research firm Grand View Research projects the market for connected devices, buildings, and cities at being worth almost $2 trillion within 5 years. GE (GE) is making huge investments in this space, and investors are already scrambling for a piece of this market.
In 2017, Solbright acquired a soalr installer to augment their services offerings, which has taken revenue through the roof in the ensuing few quarters. But what's gone unnoticed is the inherent pipeline of potential IIoT contracts as a result of this acquisition, which could mean huge growth and improved operating metrics are on the horizon.
Solar Acquisition Paying Off As Gross Profits Climb
Solbright is growing rapidly, and in April 2018 they posted a significant sales increase over the same period a year ago. Revenue for the third quarter of fiscal year 2018 (ended Feb 28, 2018) was $2.496 million or 900% higher compared to revenue of $263.8K in the third quarter of fiscal year 2017.
Meanwhile, gross profit increased to $928K from $212.4K year over year, an increase of over 430%. Gross Profits have been improving over the last year as the company fully internalizes the solar acquisition, and this is the highest Gross Profit in company history, important in the wake of an unremarkable fiscal second quarter, in-part due to the solar internatalization.
Most importantly in the long-term, however, is that these solar contracts -- of which the company says there is a $20 million backglog! -- are also inherrent potential contracts for their high-margin IIoT business. Converting solar install projects into long-term users of the company's proprietary software and hardware systems could mean millions in high-margin revenue for the company. With a SAAS software model business, this could mean margins in the 80 to 90% range.
Valuing This Company Suggest Significant Upside Potential With Proper Execution
At less than $10 million in market value, SBRT is arguably a steal, trading at less than 1X their trailing twelve months of revenue.
Finding a fair value for this business isn't easy because there are so few companies doing what Solbright does: solar photovoltaic installs AND smart networks to enhance a facility's efficiency with a proprietary software (SAAS) platform.
Vivint Solar (VSLR), which trades on the New York Stock Exchange and installs residential and commercial photovoltaic projects, offers one option. At a $450 million market capitalization, the market has applied a 1.6X Price/Sales multiple to the stock based on $268 million in sales over the last twelve months (TTM).
The same metrics applied to SBRT demonstrate just how undervalued - and undiscovered - this company is... Solbright is on track to have sales of around $13 to $15 million in their fiscal 2018, extrapolating from their last few quarters!
A 1.5 to 2.5x Price/Sales multiple could mean a fair value market capitalization based on this 2018 estimate of $20 to $38 million! The stock today is valued at just $9 million, implying the stock has 2-4x of upside as investors understand the company's latest solar acquisition. This Sales multiples may be conservative based on the company's unique dual business model, which could be coming into its own in the coming year.
Even at a 1X Price-to-Sales multiple, the stock should be trading 50% higher than it does today, demonstrating just how under-followed this name is.
This company has risks. It is a micro-cap, which are typically harder to finance, and the company may need to conduct a dilutive financing to keep growing their business. They also face headwinds in the solar space with the latest U.S. tariffs.
All-in, it's hard not to think that SBRT could be worth 1.5X to 2X today's prices based on their current revenue alone, and 2018/2019 could be when investors finally discover this underfollowed stock - that move could be worth a 100% or more gain rapidly.
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