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10/01/2019 5:00 am EST
TechPrecision Corp. (TCPS) manufactures and sells precision, large-scale fabricated and machined metal components and systems primarily in the United States, explains Faris Sleem, a specialist in small cap stocks and editor of The Bowser Report.
The company offers custom components for ships and submarines, aerospace equipment, nuclear power plants and large scale medical systems and provides manufacturing engineering services to assist customers. TCPS was founded in 1956 and has 95 full-time employees.
The majority of TechPrecision’s sales come from just three customers. While this is extremely common in the industry and allows for significant growth with a new customer or project, such a high customer concentration poses a risk if TPCS were to lose one of its top three customers.
The company has provided products and services for some of the largest domestic defense contractors. Unfortunately, management is discrete and unable to go into detail about these customers and projects.
TechPrecision has a strong foundation for growth with a healthy balance sheet. A current ratio of 3.8 shows that liquidity risk is minimal and reduces the immediate financial risk associated with the loss of a major customer.
The outlook for TechPrecision is heavily dependent on U.S. Navy spending. More specifically, the company could potentially benefit from the spending on the Columbia class submarine and three Virginia class submarines.
While it’s not common to see a high number of acquisitions in this industry, it’s probable that TechPrecision will be a buyout target down the road. The company’s consistent profitability and low operating expenses pair well with its healthy balance sheet, eliminating the risk a larger company would expect if acquiring TPCS.
TechPrecision has outstanding cash flow, improving financials and a healthy balance sheet. With $100 million in potential revenue over the next 24 months, those fundamentals are very likely to improve even more.
Moving forward, significant top-line growth and elimination of the company’s outstanding debt will be the keys to success. With minimal financial risk and the foundation for growth, TPCS is not only a strong growth stock, but a likely long-term buyout candidate with the larger companies operating in the industry.
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