$QTEK – QualTek – A solid fundamental/value play with the bonus of a “teflon” float that could move up quickly
QualTek is one of the leading providers of major 5G, telecom, and renewable energy infrastructure across the USA. This is a significant time in the 5G ramp up and $QTEK’s revenues are already strong. Factors relevant for consideration are below.
-In December 2021, QualTek reported 3rd quarter 2021 revenue of $215.5M and 3rd quarter 2021 adjusted EBITDA of $44.6M. This is more than most of these newly trading companies are making in an entire year. They projected Q4 to be strong and stated that significant contract wins would be announced.
-The company’s two-year backlog was already $1.7B in December 2021
- *This backlog does not even take into account the high likelihood of continued new contract wins in 2022. It also does not account for the “significant” new contract wins the company achieved in late 2021 and promised to announce details about at or before the Q4 earnings call in early March 2022.
-Having positive revenues and EBITDA this early is an anomaly for these newly trading companies (sadly). $QTEK has managed to earn more revenues/EBITDA in Q3 than most contemporaries do in an entire year. (see below sections)
-The company is issuing fiscal year 2022 adjusted EBITDA guidance of $100-$120M, which is roughly 30%-60% YOY growth as demand and contract wins increase along with the lightening up of covid constraints
-Even without a short squeeze or low float spike upwards, the price will likely be a magnet to 1x revenues and then it will continue to trade higher as growth outpaces competitors and revenues continue to increase. The company is now trading well below even a modest 1x revenue valuation, yet it is growing faster than it’s peers who are trading above 1x revenues. Any catalyst such as an announcement of an infrastructure deal under the US’s new infrastructure plan could send the stock much, much higher in an instant (see below)
-Price to revenue valuations of competitors such as $DY Dycom, $MTZ Mastec, and $PWR Quanta are evidence of the highly likely increase in stock price that is incoming. This is especially true given the very strong 3rd quarter numbers and predicted strong Q4 and Q1 numbers, based partly on their newest significant contract wins and the completion of portions of their backlog contracts
-President Biden just tweeted: “We finally ended infrastructure week, we’re now on the cusp of an infrastructure decade. The Bipartisan Infrastructure Law is going to rebuild our nation’s crumbling infrastructure, deliver high-speed internet to every American, ensure everyone has clean drinking water, and more.”
-*Note-QualTek is from Biden’s home state of Pennsylvania, and $QTEK’s scale has earned them large contracts across the country, from coast to coast. They are one of the very few companies that can handle the large scale deals needed to build out large 5G projects nationwide.
-The CEO commented on their sector growth in a recent February, 2022 interview:
“5G is in full swing. In 32 years in the industry, this is the most I’ve seen in bids and backlogs. [There is a huge infrastructure build out right now and we are playing a major part of it,… big telecom companies keep telling us they want more]”
-QualTek already has growing contracts with major industry leaders such as Comcast, Spectrum, ATT, T Mobile, Amazon, and this list goes on (see image below displaying partial customer list)
-This type of float is very difficult if not impossible to short once price momentum begins. If you look into the free, shortable shares, you can see there are very, very few.
–Only 100,000 shares are owned by public/retail traders after 99% redemptions
-All insider shares are locked and cannot be traded
-The remaining PIPE shares are all owned by large, institutional investors with an interest in the company and/or stock’s success. There is a maximum of 11 million shares from the PIPE investments, but these shares are unlikely to be sold given the interests mentioned. It is possible that some will sell at some point, but to do so would shoot themselves in the foot because it holds back their own profits, as well as holding back the success of the company they believed in and invested millions in.
-The fact that the float is 99% owned by big investors is key. This is the type of float that is seen making gains of several hundred percent in one day because there are minimal free shares to trade and institutions rarely sell when it prevents their own gains. Instead, they often contribute to a run up, and then sell a portion at solid profits later.
-**Keep in mind, there is never a guarantee of remarkable gains like this, but these low float, high institutional share stocks are the typical type that they occur in.
-The high revenues, combined with the low price to revenue/EBITDA ratio is likely the strongest factor behind this trade. However, the uniquely low and controlled “teflon” float is a bonus setup that could yield high gains very quickly as well.
1-QTEK has a very small and unique float makeup, making it easy to either drop or rise on very little volume. With the lack of coverage, it was easy to move down.
2-The market was extremely red and continued to stay red into the 3 day weekend
3-QTEK opened for trade right before a 3 day weekend, a time when many traders hold off and wait to buy in
4-There was little to no coverage of the trade opening, likely due to the assortment of other notable action across the market
5-Other odd factors: It was not trading readily on many platforms when it first opened for some reason (perhaps due to the low share count, perhaps just because it was new). Also, the ticker and float information was not updated when it was first opened. In fact, there was not even a Fintwits page for QTEK until some point on President’s day weekend, so anyone interested in talking about it on the popular site could not do so.
-Analysts appear bullish at last check, giving it a $13 price target even before the very strong 3rd quarter and very large reduction of the free float-(the float reduction justifies a significant price increase based on a number of ratios, including revenue to shares). With the anticipated large Q4 and Q1, upgrades are likely from here.
-RSI is almost unreadable, below the RSI 10 level on many timeframes
-$QTEK has very strong revenue and EBITDA numbers already, and they greatly outpace the current stock price. With 3rd quarter 2021 revenue of $215.5M and 3rd quarter 2021 adjusted EBITDA of $44.6M, along with a 2-year backlog $1.7B, the price will almost certainly move up to an appropriate valuation very soon. The 30%-60% YOY growth only makes that chance even greater. Price to revenue valuations of competitors such as $DY, $MTZ, and $PWR are proof of this as well.
-The uniquely low and institutionally controlled float is a bonus factor that could make the stock move up sharply
Disclosure-I am long $QTEK with a starter position of 6,600 common shares as of Friday at the end of the day when it came up on my scanner and I investigated it’s revenue numbers, current/future contracts, and float size. I have a current target of $25 after the next 3 quarters. I am not a financial advisor and this is not advice. These are personal observations.
Submitted February 22, 2022 at 12:35AM by InvestTradeEarn
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