Finally, there’s light at the end of the tunnel for Kelso Technologies (AMEX: $KIQ). The railroad company is ready to bounce back from the pandemic slump, with new products and a solid financial foothold.
As $KIQ’s operations have been deemed “essential”, its operations have continued relatively unaffected by COVID lockdowns, why its revenues did not drop as much as others in the railroad industry.
Kelso is in the early stage of diversifying into other avenues in the transport market like the automobile suspension system – that they are looking to enter with their wholly-owned subsidiary KXI Wildertech, which prepares vehicles for all-terrain travels.
$KQI Stock has in the past 5 years dropped 76%.
Company’ financial outlook
The downtrend could be attributed to the continuous fall in the ROCE throughout the last 5 years, from 34% ROCE down to the current level of 25% ROCE, along with inefficient use of capital. A reversal of this trend might be on the near horizon.
This said, $KIQ’s ROCE of 25% in July was notably higher than the industry average of 10%, an investment in $KIQ would have given more return per unit of capital employed before tax.
The stock is 40% undervalued.
The intrinsic value of the stock is placed at approximately $0.68 per share as opposed to its current price of $0.49, as of 27th November. Also, $KIQ’s P/E of 13.8x is far below the average of 24.441x, for most companies operating in the same industry in North America.
Indicating that Kelso Technologies is outperforming the market.
L.B. Foster (NASDAQ: $FSTR), a US-based company with a market cap of $161.29 million, far greater than $KIQ’s 25.18M. It may seem to be the only company in the railroad industry that could be more attractive than $KIQ based on its lower P/E ratio of 3.13 compared to Kelso’s 13.8x.
Both ROE of 23% and growth in net sales of 36% are higher than the industry averages.
There has been a large drop in the revenues across the industry but Kelso’s numbers still remain higher than the industry averages. (E.g. Industry ROE of 16%.)
Not to mention $KIQ is reinvesting into its own future growth, after all, it does not pay dividends, and its current fall in stock price might not be the best indicator of the company’s financial situation.
Kelso Technologies is attempting to increase its range of products and services. They recently approved an equipment trial for Top Ball Valve – a general service rail tank car whose primary purpose is of loading and unloading the contents of the tank – which is a product that is far more reliable, versatile and efficient, than the current one.
Expectations for the outcome of the trials are optimistic and could explain the recent price spikes. A further price hike might come around in Q2 2021, following the announced approval for the trial of the product Top Ball Valve.
KIQ’s future outlook
Kelso Technologies has stumbled upon a business model that will take full advantage of the post-pandemic recovery as railways are forecasted to be quite essential for the post-pandemic recovery in Canada as resumes to pre-pandemic levels. When travel somewhat resumes, the company is likely to report returning to convergence to pre-pandemic returns.
The fact that $KIQ has a well-established reputation in the industry, particularly in the train tank cars niche, has earned them the goodwill that could prove to be an asset in the long run. Furthermore capitalizing and developing on this niche could lead to economies of scale that other firms just cannot compete with.
Any optimistic new publications regarding developments in product innovation could cause a price spike, as we saw in July when Kelso announced the AAR approval of trials for its new design.
Any unforeseen hiccups during the development of the new products are always present risks of innovation, as well as R&D costs, which can completely bury an ambitious company if they are met with too stringent bureaucracy. Kelso’s CEO, James Bond, has already expressed that he expects the process to be lengthy and quite expensive.
With that said, who is in their sane minds going to bet against a company with our beloved 00-agent at the front?
Kelso Technologies (AMEX: $KIQ) appears to be fundamentally sound and in the process of developing a more diversified foundation.
Not to mention the expected revenue increase from the new products, and with the upcoming vaccine, the possibility of resuming transport, as usual, is realistic, though distant.
The outlook for the company is positive as it’s ultimately undervalued.