Arotech Stock: Profits Stagnate but Can It Turn Things Around?

Arotech Stock

Arotech stock has been on the decline since Arotech Corp (NASDAQ:ARTX) posted its Q1 report earlier in May. Results fell behind analyst estimates, and this sent shares on a downward spiral. Now, shares have fallen over 26% and are currently selling for $2.12 USD.

Arotech Stock Q1 Report

Arotech came out with a quarterly loss of $0.03 per share versus the Zacks Consensus Estimate of $0.03 earnings. This is a considerable downturn from last year’s earnings per share of $0.05.

According to Zacks:

“This quarterly report represents an earnings surprise of -200%. A quarter ago, it was expected that this provider of defense and security products would post earnings of $0.03 per share when it actually produced earnings of $0.04, delivering a surprise of 33.33%.”

Further, in the last four quarters, the company has managed to surpass EPS estimates only twice. Akin to that, it has topped consensus revenue estimates just once in the last four quarters, with this quarter being one of the disappointing ones: Arotech Corp posted revenues of $20.78 million compared to the same period last year when it posted revenues of $27.25 million.

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On this occasion, it has missed the Zacks Consensus Estimate by 13.78%.

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Arotech Stock is Down Though US Spending is Big

With a tiny market cap of just $53.56 million, Arotech is a small-cap play in the defense sector. It manufactures defense and security products and offers relative services. Products include designs for military and non-military air and ground vehicles, batteries and charging systems for the military, and interactive simulations for law enforcement and military training.

With the US placing major emphasis (and major bucks) on national defense, Arotech operates in a highly lucrative sector. The US’s 2019 national defense budget is around $700 billion USD, having grown over 3% from 2018’s budget. And based on historical trends, that figure looks set to rise by the year.

With all that money to be spent on defense, analysts have shone a light on Arotech stock with expectations for it to win a major contract. If it can do this, Arotech stock should rise significantly.

Where to Next?

However, Arotech Corp hasn’t seen any major rallies in several years. And according to InvestorPlace:

“The financials at Arotech haven’t gained any ground. Five years ago, its revenues were $103.5 million and its net income was $3.5 million. In 2017, its revenues were $98.7 million and its net income was $3.8 million.”

Arotech’s profits haven’t risen much in five years and as such, neither has its shares. But that could all change if the company lands a major defense contract. Until then, however, Arotech stock is likely to trade sideways.

What do you think? Do you agree?

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