Shares of RADA Electronic Industries (RADA) exploded to close at a 52-week high of $5.97 on Monday after the Israeli company reported second-quarter earnings.
This represents a whopping 137% jump in price from Friday’s close of $2.51 for the defense contractor, which is engaged in the development, manufacture, and sale of defense electronics to worldwide air forces.
The company announced that revenue totaled $6.4 million – a 23% increase over the same quarter in 2013. It also reported net income of $385,000 ($0.04 cents per share). This compares to a net loss of $935,000, which translates into -$0.10 per share, in the second quarter of 2013.
Much of RADA’s second-quarter success is a result of its selection by the United States Marine Corps to provide low-altitude air defense capabilities, which the firm started delivering in July 2014.
Additionally, RADA’s RPS-42 Tactical Volume Surveillance Radar System detects, tracks, and classifies rockets, mortars, and artillery, as well as low-flying aircraft for the Israeli Defense Forces in their continued fight against Hamas (and other combatants in the Middle East).
RADA’s systems provide a unique ability to detect small and low-flying tactical threats to land-based forces, which cannot be detected by most existing air defense radars.
The benefits of this advanced technology helped propel RADA’s gross profit to $2.04 million from $800,000 in Q2 2013 – an increase of 164% year over year.
In Monday’s session, more than 37.7 million shares had changed hands – significantly above its average daily volume of 196,578 shares.
The stock has increased more than 311% YTD and more than 381% since August 12, 2014.
Unfortunately, a closer look at the company shows that – at this time – RADA doesn’t make the grade as a potential investment for the majority of investors, though.
The company has significant weaknesses, which will prevent it from continuing this aggressive upside move.
The company’s debt-equity ratio of 265 is the first indication that the recent run-up in stock price is unsustainable.
Still worse, the company sports a net profit margin of -6% with an operating margin of just 1.85% – completely at odds with a stock climbing 137% since last Friday.
These metrics point to a price spike that was purely speculative in nature, and completely devoid of any meaningful connection to legitimate valuations.
RADA may provide sufficient cover for the United States Marine Corps and Israeli Defense Forces, but investors should seek cover from the fallout of this overpriced stock.
No matter how you look at it, RADA Electronic Industries is a dud.