Q: Could you please give me your opinion on DRX upsharply but still trading at a low multiple. Is this a long term investment or possibly becoming overvalued. Thanks for your analysis,
5i Research Answer:
Analysts expect decent forward sales growth for DRX, debt levels are low, and its profit margins have shown nice expansion. It continues to trade at a cheap valuation (0.7X forward sales and 7.3X forward earnings). It generates strong free cash flows and has been adding to its cash balance (now at $44M on a $246M market cap). We could see the company begin to use its cash for either acquisitions or share buybacks. It has a relatively large backlog which should help the stock continue its upward momentum, and its cash gives it optionality to grow. While it has seen a strong, sustained move higher, we think the stock looks good here, while being mindful of small-cap risks and position sizing.