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Here’s why the Electro Optic Systems (ASX:EOS) share price is 40% lower than its 52-week high

What’s behind the fall in the share price?
The post Here’s why the Electro Optic Systems (ASX:EOS) share price is 40% lower than its 52-week high appeared first on The Motley Fool Australia. –

It’s been a tough year so far for shareholders of ASX space and defence company Electro Optic Systems Holdings Limited (ASX: EOS). The company’s share price has plunged almost 30% in 2021 – to just $4.20, as at the time of writing. This means that Electro Optic Systems shares are now almost 40% below the 52-week high price of $6.92 they set all the way back in November of last year.

Company background

EOS specialises in electro-optic technologies – machinery and other applications that convert light rays into electronic signals. This type of technology supports clients operating in the space, defence and communications sectors. Electro-optic technologies can assist with a diverse range of highly technical and complex scenarios, like satellite tracking, missile defence and even military combat.

What is behind the Electro Optic Systems share price decline?

The reality is that the Electro Optic Systems share price woes stretch back a lot further than just the last 12 months. Prior to the COVID-19 market crash in March 2020, EOS shares were valued above $10 a share – well over twice their current price.

But when COVID struck the Electro Optics Systems share price dropped off a cliff. After looking set to cross $11 for the first time in their history, EOS shares plunged more than 65% in the space of just 6 weeks, dipping below $3.70.

It was pretty apparent why. In its activity report for the quarter ended 31 March 2020, EOS revealed that the coronavirus pandemic had caused disruptions at several points along the company’s product delivery chain.

Given the highly specialised nature of Electro Optic System’s products, many require significant checking, installation and testing by trained professionals – all prior to being accepted by the customer. Lockdowns in many jurisdictions, as well as government-imposed travel restrictions, prevented EOS from performing these crucial steps in its delivery chain.

This all led to the company being forced to massively downgrade its revenue guidance for 2020 – from year-on-year growth of 70% to just 25%. In the end, its total revenues fell short of even that target, increasing 15% to $190.2 million.

What else was in the company’s financials?

EOS, which reports based on a year ending 31 December, released its FY20 results at the end of February. It was a bad result across the board for EOS, with the big drop in revenues translating to an overall net loss after tax of almost $26 million for the year. By comparison, the year before, EOS reported a net profit of almost $18 million.

According to EOS, short-term profitability tanked because the company couldn’t deliver its products to its customers, meaning the majority of its revenues were being delayed to 2021. However, it was still racking up expenses.

For its part, Electro Optics Systems believes it can rebound swiftly as the effects of the pandemic ease globally. According to a presentation given at the company’s Annual General Meeting in late May, EOS expects revenues for 2021 to be between $235 million and $245 million, potentially representing year-on-year growth of close to 30%.

Recent movements in the Electro Optics Systems share price

For a moment there, it almost looked as though the Electro Optics Systems share price was staging a recovery in June. The company’s optimistic revenue guidance, combined with news that its cash receipts were finally beginning to accelerate, sparked a brief rally in the Electro Optics Systems share price.

However, renewed lockdowns and global fears around the spread of the delta strain of coronavirus may be again weighing on the Electro Optics Systems share price – particularly given the impacts COVID has had on its delivery chains. This puts an incredible amount of focus on the company’s first-half FY21 results, to be released to the market on 30 August. EOS will be hoping it can reassure investors that the worst of the pandemic is finally behind it.

The post Here’s why the Electro Optic Systems (ASX:EOS) share price is 40% lower than its 52-week high appeared first on The Motley Fool Australia.

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Motley Fool contributor Rhys Brock owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Electro Optic Systems Holdings Limited. The Motley Fool Australia owns shares of and has recommended Electro Optic Systems Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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