Technology. It has and continues to cause an upward surge in mankind. For example, the invention of the computer (1800s), Apollo 11 landing on the moon (1969), or even the introduction of the GPS (1974) have all radically improved life as we know it.
Technology is an attractive investing sector. Because of the future value, innovative developments hold for society. However, those new to investing may gravitate towards Facebook, Amazon, Netflix, and Google (FANG stocks) to make money in the technology space.
FANG stocks are an excellent start. However, there is a whole world of technology micro caps worth exploring. Mainly because many small tech companies are showing strong earnings forecasts and future growth potential. Thus, bringing me to today’s technology stock, Rectifier Technologies (ASX: RFT).
Who is Rectifier Technologies?
RFT was born in 1992 and specialise in manufacturing electric vehicle charging units. They manufacture EV charger modules, power shelves, and systems, allowing drivers to access fast charging.
RFT and the EV market
Electric vehicle sales in 2019 tripled in Australia while combustion engine sales fell by 8%. Despite the surge in sales EV’s only makeup 0.6% (early adopters) of all cars sold in Australia. Validating the claim that Electric Vehicles have not taken off. However, as technology and manufacturing procedures become more refined, electric cars will become cheaper, and let’s face it are the future. Especially when by 2035 it is that 50% of new cars sold in Australia will be electric.
The refining of electric vehicles is where RFT enters the spotlight. Because our busy lives demand the constant use of transport. Thus, faster EV chargers mean the more time we can use the car and less time charging.
To me, I can smell, see, and feel an opportunity in the EV market. Australia will need to witness a drastic change in infrastructure to accommodate the increase in electric vehicles on our roads. Currently, two-thirds of motorists view infrastructure as the critical barrier to EV’s. Hence, why companies like RFT hold huge upside potential.
Is Rectifier Technologies worth the investment?
Before I start, I am obliged to remind our viewers that this not advice, only general commentary from my extensive research into this area.
I could sell the idea of the future of Electric vehicles until the cows come home. However, that is the future, so lets us look at RFT’s past financial history.
In the 2019 financial year, RFT achieved:
- Revenue growth of 140.90% – $7.8 million to $18.9 million
- Sales increased by 720% – $1.5 million in 2018 to $12.3 million
Furthermore, RFT experienced earnings growth over the past five years of 26.4%, far above the industry average of 7.0%. Due to the coronavirus, the markets earnings growth has only managed to grow by 1.1% over the last year. Yet RFT bucked the trend as they experienced an astounding earnings growth of 148.8%.
RFT’s financial health also proves well with a satisfactory debt to equity ratio of 38.4% and a good operating cash flow of 139.9%.
RFT is also significantly undervalued at its current share price of AU$0.03. (opinion not advice). A discount cashflow model indicates that RFT’s fair value is around AU$0.15. That means RFT is currently trading at a whopping 80.2% discount. Thus, if you combine an undervalued stock (opinion not advice) with strong financials and a growing EV market, you have a recipe for success.
Despite the fairy tale story, we must discuss the negatives. Here at YIG, we believe every investor should be given a balanced perspective and not lured into speculative stocks.
COVID-19 is disrupting RFT’s supply chain. RFT manufactures its products in Malaysia. However, due to COVID these factories were forced to close. Ultimately, decreasing profits in the short term. Increases in unemployment also impacted RFT as EV sales dropped as a result of a decrease in spending in the economy.
Furthermore, being a microcap there is an increase in risk as smaller companies often underperform during a recession. Microcaps are also more susceptible to supply chain shocks and often struggle raising sufficient capital due to the added risk of being a smaller company.
RFT is financially healthy and holds the ability to generate strong sales and profits in the future. Thus, proving a strong investment for the long-term investor (opinion not, advice) Being a small cap there is greater risk involved than say investing in MQG, but as the old saying goes “The greater the risk, the greater the reward.”
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Marlon Ferguson, Associate of YIG.