Is Kraken Robotics One for the Back Pocket?
Investing in this $1 stock might be speculative, but it's not gambling.
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Have you ever wanted to find a stock in its very early stages of development and get in ahead of the crowd in the hope that it will "make it big" or "be acquired" someday?
Of course you have. We all do. I'm not saying that I have one here, but I am saying that I might. I saw a headline go across my screen early on Monday morning. Apparently, Kraken Robotics KRKNF, which trades over the counter, announced that the firm had received several orders totaling a rough $3 million for miniature synthetic aperture sonar systems.
According to the press release, the orders came from three customers for the man-portable SAS and MINAS 120 systems. The idea is to use underwater robots instead of frogmen (Navy divers) to be used in mine countermeasure operations. CEO Greg Reid commented, "We're increasing our inventory to be able to more quickly respond to this need, enabling navies worldwide to collect critical data for accurate and efficient decision-making."
Kraken has also announced the renewal of the firm's capital markets advisory agreement with Sophic Capital for a term of 12 months, which commenced back in February. Sophic will assist in the preparation of an investor communications plan, investor materials, news releases, roadshows and conference calls.
Who The Heck Are These Guys?
Kraken Robotics is a Canadian-based (Mount Pearl, Newfoundland and Labrador) marine technology firm providing complex subsea sensors, batteries and robotic systems globally. The company operates through two segments: Products and Services. The Products side of the firm designs, manufactures and sells equipment to include underwater vehicle platforms, synthetic aperture sonar and subsea power operations.
The Services side of the firm provides care for underwater sonar and laser scanning sensory equipment. The company's high-resolution, three-dimensional acoustic imaging solutions enable clients to overcome challenges below sea level.
This is a smallish, small-cap stock, running with a market cap of about $293 million that does not actually make serious money just yet. That does not make the company new. The last sale I see of this writing is $1.33, which is an adjusted high since the firm's inception back in 2016. Small caps, by the way, generally run from $250 million to $2 billion. Being larger than $2 billion makes a firm a mid-cap, while being smaller than $250 million makes a firm a micro-cap.
The Numbers
In American dollars, Kraken generated revenue of $16.6 million for the second quarter which ended in June and $67.2 million for the trailing 12 months at that time. The Q2 total was good for year-over-year growth of 61.2% and the trailing 12-month total was good for year over year growth of 110%. Gross profit for the quarter came to $8.5 million (+46.5%) and for the trailing 12 months came to $31.2 million (+96.2). Operating income for the quarter hit $3 million (up from $1.1 million), while for the trailing 12 months it reached $10.5 million (up from $500,000).
As of the end of June, Kraken held a cash position of $14.9 million, and inventories of $13 million putting current assets at $47.4 million. Current liabilities added up to $17.5 million, which was mostly accounts payable. That number also includes unearned revenue of $3.7 million, which as we know, is not a true financial obligation. Current debt added up to just $900,000. This put the firm's current ratio at a very healthy looking 2.71. Even omitting the valuation for the firm's inventories, its quick ratio stood at stout 1.97. Adjusted for those unearned revenues, these ratios rise to 3.43 and 2.49, respectively.
Total assets amounted to $72 million, of which only $7.6 million could be considered intangible. Total liabilities less equity came to $30.8 million, including $11.3 million in long-term debt that the firm has enough cash on hand to take care of if need be.
My Thoughts
I don't know if this company can go anywhere from here. Clearly, the militaries of the world are waking up to the growing need for underwater robotics in accomplishing dangerous missions and in data collection. It may take a very long time for something truly significant to happen here, but the balance sheet is in good shape and the firm is not over indebted. That makes it better than many stocks that trade at slow single-digit prices.
I know charting a $1 stock is a little crazy, but this pitchfork runs back to mid-2022 and the last sale has moved into the upper chamber of the model. Relative strength is solid, and the daily MACD is postured very bullishly.
Bottom line? Investing here is still speculation, but it's not gambling. A positive case can be made for Kraken Robotics across several levels of both fundamental and technical analysis. I may buy some of these myself after my article is public and stick it in my back pocket for a while.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
