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The bears are loose! If you have this stock in your portfolio, you should be on your guard now

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Suddenly things happened very fast: the stock price plummeted almost 19% LPKF Lasers and electronics (WKN: 645000) yesterday in the basement. The paper now only costs 13.16 euros (as of March 24, 2022). The reason was the weak numbers for 2021.

LPKF disappoints many market participants

Project delays and logistics bottlenecks severely scarred LPKF in fiscal 2021. Sales fell nearly 3%. The end result is a loss of 0.1 million euros. In the previous year, the profit was 5.3 million euros. The consequence: the 2021 dividend is cancelled.

LPKF

LPKF

The consequences of Corona continue to weigh heavily. LPKF is having problems shipping its products. But there are also problems when buying. Raw materials and components are trapped in slow supply chains.

LPKF faces an uncertain future

The management around the new CEO Klaus Fiedler is now very cautious. Due to the current political and economic environment, the ability to plan and predict business development is significantly limited. Therefore, the Board of Directors forecasts sales of between 22 and 26 million euros for the first quarter. The EBIT in this period should be between -2 and 1 million euros.

In 2022 as a whole, sales should increase to at least €110 million and the EBIT margin between 2 and 7%. Why this optimism? The increase in incoming orders is encouraging. This increased by 15.2% to €117.9 million in 2021. The total order book at the end of 2021 was €62.6 million. That is 64% more than in the previous year.

In the long term, LPKF is a solid company

The increasing number of orders shows us fools that LPKF products are still in high demand. Production conditions are not adequate at this time. Corona, supply chains, commodity prices, the Ukraine war – the problem is complex. Therefore, it is difficult to predict whether the LPKF management will be able to achieve its goals by 2022. We fools do not have a crystal ball either.

Does LPKF still have the necessary financial strength?

Debt and other liabilities only become truly risky for a company when they cannot be easily met. This means that as soon as free cash flow is no longer sufficient or new loans become too expensive, we have to take a closer look.

The advantage of such external capital is that it often represents cheap money. Especially if it can then be reinvested with high returns.

A look at the latest balance sheet data shows that LPKF Laser & Electronics has liabilities of €30.6 million due within twelve months. In addition, there are long-term liabilities of 6.1 million euros. On the other hand, there are €4.9 million in cash and cash equivalents and €17.5 million in short-term accounts receivable. Therefore, liabilities exceed the sum of liquid funds and accounts receivable by EUR 14.3 million.

The balance is put to the test

At first glance, everything looks clean: LPKF has reduced its debt ratio from 94.5% to just 6.7% in the last five years. In addition, the debt load is well covered by operating cash flow. And current assets are more than double current liabilities.

But it is primarily future earnings that will allow LPKF Laser & Electronics to continue to have a healthy balance sheet well into the future. And this is exactly where the problem is now, unfortunately.

The big trends are still intact

LPKF will participate in the fields of miniaturization and digitization. So, in the long run, my investment thesis holds up. The only question is when the LPKF will finally spin out of control. Currently, the stock is nothing more than an interesting exchange candidate. This action looks much more attractive.

The article The Bears are on the loose! If you have this stock in your custody, you need to be on your toes now first appeared in The Motley Fool Germany.

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Henning Lindhoff does not own any of the aforementioned shares. The Motley Fool recommends LPKF Lasers & Electronics.

Motley Fool Germany 2022

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