It’s time to dial things down a notch and talk about the small cap name in my portfolio: Daktronics Inc. (NASDAQ: DAKT) At a market cap of just under 500 million, this company isn’t one most investors have heard of. How did I stumble across it? Honestly, just fooling around on Yahoo! Finance, looking for charts I liked.
So what does this company do? They make electronic display systems. Large ones. Small ones too, but the large ones are more fun to talk about. Check out some videos on their website and you’ll get a good idea about some of the high profile jobs they’ve done.
The company has five segments: Commercial, Transportation, Live Events, High School Parks and Recreation, and International. So while they do major projects like 36.5 feet high by 129 feet wide screens for the StubHub Center in Los Angeles, they will also grab dollars at your local high school by putting up more modest scoreboards and displays. But really, many of the high school displays are not all that modest. Some are downright amazing.
On a recent Yahoo! Finance video, Daktronics President and CEO Reece Kurtenbach discussed this phenomenon. He talked about how the trend in spending for video displays you see in pro sports filters down into college sports. And that same trend filters from college sports down to high school sports.
Why is that happening? Why are some high schools shelling out real money for large, nice electronic displays? While I know Jack about sports (despite spending much of my time working in a casino sports bar) it makes sense when you think about it. Pro stadiums sell advertising space on these huge screens. Colleges do too. Why not high schools? Now for a high school they might not call it ‘advertising’… they probably call it ‘sponsorship’. But who cares. Your local HS might not be selling ad space to PepsiCo, Inc. (NYSE: PEP), but they are selling it to Bob’s local auto shop, or Cindy, your neighborhood Realtor who can get the job DONE. (And heck, they MIGHT be selling it to PepsiCo too)
More interesting, to me at least, is their commercial segment. More and more businesses are using digital displays to draw in customers. More and more of the billboards you see along the freeway are digital. A billboard you don’t have to pay people to climb up and change? A screen where you can display one thing as a certain demographic drives by your business at rush hour, then change later as another demographic walks by at lunch? (or whatever, you get the idea) A display you can have potential advertisers bid on and instantly change? I don’t see this trend slowing down.
Let’s talk about advertisers bidding for space on a digital display. In May, Fliphound announced that its ad space bidding platform can now be accessed through Daktronics Visiconn display management system. What is Fliphound? They provide an online system where advertisers can bid on real-time billboard space. Users can basically log in and pick specific billboards on a map. Pretty cool idea. Maybe they’ll go public some day? I’d invest in the idea, at the right price, of course. Their website proclaims ‘Billboard ads from $10/day’. Heck, I might advertise stockpickingbartender.com! I need eyeballs too.
Why Daktronics? They aren’t the only company in the world that does this kind of thing. Here are some statistics, taken from their website. They have 75,000 displays installed worldwide. They have over 700,000sqft of manufacturing facilities in the United States. They have more market share than any other company. They’ve made the Forbes list of ‘America’s Most Trustworthy Companies’ from 2012 to 2015. And that sounds great right? I wouldn’t want to invest in anything on the Least Trustworthy list, would you?
The company is also working hard to grow internationally. Last year they bought Data Display, an Irish company that does digital signs for railways, airports and such. Daktronics has a good balance sheet, and a dividend yield of about 3.5%. In fact, in doing research for this post, I saw Daktronics listed on several sites that were focused on dividend yield. Free money while holding the stock? Why not?
On June 2nd, Daktronics reported quarterly earnings per share of 9 cents before the market opened. Analysts were looking for 11 cents. The day before, DAKT closed at $10.79. It opened on June 2nd at $10.10, only to jump back up and close at $10.81 that same day. A great move.
Where did I buy? RIGHT at $10.10. That’s the lowest price you could buy it in the last several months. Am I a genius? Well, maybe, but not because of this. I think my limit order was at something like $10.35, but my online broker got me in first thing that day, so I got my 31 shares at a great price. Since then it’s gone up to $12.25, and back to $11.34, where it’s at as I write this. This has been a pretty good example of making a list of companies you like, and snapping one up when it dips down to your target. If I hadn’t done the work ahead of time and simply read the headline the day it reported, I wouldn’t have gotten that price.
Why did the stock react like this? Well, I guess the 2 cent miss scared some people out of their positions, but later on the details fleshed out during the conference call made people optimistic. That’s my take anyway. Margins were down because of some big projects they worked on in the period. Larger projects have lower margins due to competition and sub-contracting. Gross profit margins for the quarter decreased from 24.8% for the 4th quarter the previous year, to 22.3%. In the conference call they also talked about increasing sales, AND increasing expenses. We can’t have it ALL, can we? The outlook for future business sounded good, including a large project for the new Atlanta stadium.
So would I buy more of this company? Well, I would not ‘average up’ into a stock, but I’d certainly buy more if it fell significantly below my buy price, unless something fundamental changed my outlook for the company, of course. I don’t THINK this will fall down to that point though. It seems to have pretty strong support in the high $9’s, low $10’s. I really wanted to buy more at first, but I followed my discipline. Also, I knew I’d feel like the biggest fool on the planet if I ‘doubled down’ first thing and it kept tanking. The general trend has been down since the end of 2013. But I’m up on the position now, and expect to stay that way. And yes, I know that sounded a little pretentious. (Look at the ‘Trading Philosophy’ section to see how I make my trades.)
Well, this has been my third blog post, about the third and final company currently in my portfolio. If you’re interested Chesapeake Energy (NYSE: CHK) or First Solar Inc. (NASDAQ: FSLR), take a look at my previous posts. Unless I buy something by Tuesday, July 21st, my next post will be about a company on my watch-list, along with where my limit buy is. Fun stuff! Stay tuned.
As always, feel free to look at my portfolio and see how I’m doing. And please READ MY DISCLAIMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.
Michael, the Stock Picking Bartender