Photon Control has an “exceptional” risk/reward profile, Echelon Wealth says

The stock has been one Canada’s better performing techs over the past year, but Echelon Wealth Partners analyst Amr Ezzat thinks shares of Photon Control (TSXV:PHO) still have a ways to go.

On Thursday, Photon Control reported its Q3, 2017 results. The company earned $1.7-million on revenue of $12.0-million, a topline that was up 38 per cent over the same period last year.

“We achieved record revenues for the quarter as a result of continuing strong industry growth and customer demand,” said CEO Scott Edmonds. “These record results drove strong cash flow in the quarter. As we look to the fourth quarter, our operations are running efficiently and we believe we are well positioned to meet the demand from our backlog which is also at an all-time high.”

Ezzat says Photon Control pulled a rabbit out of a hat in the third quarter, besting his expectations.

“With the stock currently trading at 14.9x 2018 earnings (12.8x ex-cash), we believe Photon Control presents exceptional risk/reward characteristics,” the analyst said. “Q317 Sales and in turn EBITDA were considerably above our forecast, reflecting market share gains and robust industry growth. With backlog sitting at an all-time high, together with a recent bullish outlook provided by the semicap players, we see further growth ahead for Photon.”

In a research update to clients today, Ezzat maintained his “Buy” rating, but raised his one-year price target on Photon Control from $2.00 to $2.25, implying a return of 35.5 per cent at the time of publication.

Ezzat thinks Photon Control will generate EBITDA of $15.2-million on revenue of $44.8-million in fiscal 2017. He expects those numbers will improve to EBITDA of $16.8-million on a topline of $51.6-million the following year.