SMID stock: What you need to know about investing in Smith-Midland

By Kirsteen Mackay

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Smith-Midland (NASDAQ: SMID) stock has fallen out of favor but an optimistic outlook could bring rewards to patient shareholders.

Concrete company Smith-Midland Corp (NASDAQ: SMID) was one of the companies mentioned in our earnings preview last week. So, let’s have a look at how it fared.

We also mentioned SMID stock as a pick in our Q4 2021 round-up of materials stocks to consider for growth investing. We published this top pick idea in early October when SMID stock traded at around $15. By the end of December, it had soared above $47, a 213% bump. But since then, the Smith-Midland share price has slumped back down to $19.36.

What is Smith-Midland?

Smith-Midland Corp is a specialist in precast concrete products. The concrete business is not exactly exciting. But Smith-Midland manufactures vital infrastructure we see around us every day.

From the pre-cast concrete barriers we see on the highway to entire walls for shops, offices, and construction sites. The company also makes pre-cast cladding, soundproof barrier walls, and entire buildings.

Smith-Midland’s target customer base primarily covers the construction, utilities, and farming industries.

For Smith-Midland, research and development has been a big part of making the business what it is today. 

The company has patented five popular products lines that are key to its success. These include:

  • Easi-set Buildings

  • Slenderwall

  • J-J Hooks

  • Softsound

  • Beach Prisms

One thing these products have in common is convenience.

The construction industry is bound by tight turnaround times, tight budgets, and labor constraints. Smith-Midland’s products help by reducing manual labor, they conform to regulations, and they reduce project costs.

When did Smith-Midland IPO?

Smith-Midland is a long-established company that went public via IPO in December 1995.

How does Smith-Midland make money?

Smith-Midland makes money from product sales, royalties, rentals, and recurring services. 

For instance, Smith-Midland licenses its J-J Hooks barrier system to producers for a royalty fee. The company now has over 40 licensees producing the J-J Hooks barrier.

SMID Stock Financial Overview

At the end of last year, Smith-Midland had $13.5m in cash and investments on its balance sheet. This dropped to $10m by the end of Q1 2022.

Money owed to the company amounted to $10.5m, while debt totaled $4.2m.

Smith-Midland spent $5.4m in 2021, up from $2.6m in 2020.

  • P/E: 13.4

  • P/BV: 3.2

  • P/S: 2

  • Dividend: N/A

Smith-Midland reported disappointing results for Q4 2021. But 2021 marked its seventh consecutive year of positive earnings.

Q4 and FY21 results cover up to December 31, 2022.

Q4 Financial Results

  • Revenues: $10m (down 10% from $11.1m in Q420)

  • Operating Loss: $179k (down from $1.3m Income in Q420)

  • Net Income: $24k (down from $713k in Q420)

  • Basic and Diluted EPS: $0 (down from $0.13 in Q420)

Financial Highlights

  • Won $4.2m barrier rental contract

  • Acquired 30-acre industrial lot adjacent to Virginia manufacturing facility

  • The order backlog increased to $29m (from $19.6m Y/Y)

Unfortunately, Q4 2021 disappointed as revenues declined 10% Y/Y during this period. This decline was blamed on non-recurring projects that brought additional revenue in Q4 2020, delays in customer approvals, rising material costs and labor constraints.

Full Year 2021 Financial Results

  • Total Revenues: $50.6m (up 15% from $43.9m in 2020)

  • Gross Margins: 25% (up from 22% in 2020)

  • Operating Income: $6.2m (up 64% from $3.8m in 2020)

  • Net Income: $7.6m (up from $2.7 million Y/Y)

  • EPS: $1.45, (up 184% from $0.51 in 2020)

  • Royalty Revenue: $2.2m (up 31% from 2020)

  • Total Product Sales: $28.5m (up 6% Y/Y)

The 2021 rise in revenues was mainly thanks to barrier rental from multiple short-term projects in Q1.

Meanwhile, more sales personnel and non-cash stock compensation expenses led to bigger operating costs.

Profitability for the full year was positively impacted by the forgiveness of a PPP loan amounting to $2.7m. This added $0.51 to the earnings per share.

Full Year 2021 Financial Highlights

  • J-J Hooks barrier system approved by the California Department of Transportation

  • SMID stock is included in the Russell Microcap Index

  • Delivered safest year in Smith-Midland company history

 Ashley B. Smith, the Smith-Midland CEO, said: 

We are pleased with our strong year-over-year results which yielded significantly higher bottom-line performance. Even with the uncertainty and headwinds from COVID-19, inflation, supply chain challenges, and labor constraints, we were able to deliver the most profitable and safest year in our Company’s history.

Key Product Sales Overview

  • SlenderWall sales increased by 89% in 2021, to $1.8m Y/Y, mainly thanks to a Q2 project.

  • Soundwall sales rose 7% to $8m Y/Y. 

  • Barrier sales contributed $4.7m, down from $5.5m Y/Y. This is in line with Smith-Midland pivoting to barrier rentals rather than sales. 

  • Utility sales grew 88% Y/Y, mainly due to a data center project win in Q3.

Future Outlook

While Smith-Midland has faced several challenges out of its control this past year, it has soldiered on. Now, regulatory tailwinds and a favorable economic backdrop present an opportunity for the company to win more work and respond to rising demand for its products.

Service revenue comprising royalty income, barrier rental, and shipping and installation reached $22.1m in 2021. That’s a 30% improvement on 2020.

In the year ahead, the company plans to invest $5m, increasing its rental fleet. Plus, $1.5m in expanding its storage facilities. These investments should help Smith-Midland further raise its barrier rental revenue while increasing margins and profitability.

According to SMID CEO, the company is in its best-ever position to capitalize as US highway barriers are replaced over the next three to eight years. Its patented J-J Hooks MASH-TL3 compliant highway barrier system should be in high demand to respond to this need.

Texas has the most highway miles in the US, and SMID licensees have been operating there for over two decades. It now has approvals in California and Florida, which sport the second and third most highway miles in the US.

With government infrastructure spending expected to rise, Smith-Midland’s expanded barrier fleet should be put to work. 

Q1 2022 is off to a slow start with project delays and COVID-19 disruption causing issues, but the company remains optimistic.

The company is also enjoying a rising backlog of orders, nicely illustrating rising demand. It also anticipates continued growth of core rental revenues in 2022.

In anticipation of a busier period, management plans to expand its sales team and increase its advertising budget.

Risks to investing in SMID stock

Year-to-date, the Smith-Midland Corporation (SMID) stock is down by -47.16%, while the S&P 500 is down -4.46% over the same period. 

Over the past year, SMID stock has traded between $10.75 and $47.99. Today it trades for around $19. This shows that the stock has fallen out of favor.

The industry faces an economic boost as infrastructure investment becomes a government priority. However, the company still faces headwinds from labor shortages, COVID-19 inconveniences, rising commodity costs and supply chain shortages.

SMID stock doesn’t offer a dividend yield to sweeten the deal, but it could prove a lucrative long-term investment for investors who don’t mind the risk.

If the company delivers on its optimistic outlook, shareholders should be rewarded for their patience.

If you enjoyed reading this SMID stock overview, why not read more of our investment analysis or IPO coverage.

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In this article:

Topics:
Construction and Engineering
Industries:
Industrials
Materials
Companies:
Smith-Midland

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay currently holds a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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