Investment Thesis
Frequency Electronics demonstrates solid profitability with healthy gross margins (38.1%) and strong interest coverage (50x), indicating operational competence and low financial distress risk. However, negative free cash flow (-3.0M, -6.3% FCF margin) and declining operating cash flow (-779K) raise concerns about cash generation despite positive net income, suggesting potential working capital challenges or accounting quality issues that warrant further investigation.
Strengths
- Healthy gross margin of 38.1% demonstrates strong product pricing power and cost management
- Fortress balance sheet with low leverage (0.14x Debt/Equity) and excellent interest coverage ratio of 50x
- Positive net income of 4.0M and net margin of 8.4% showing bottom-line profitability
- Strong liquidity position with current ratio of 2.60x and quick ratio of 1.32x
Risks
- Significant cash flow deterioration with negative operating cash flow (-779K) and free cash flow (-3.0M) despite positive net income suggests potential working capital strain or earnings quality concerns
- Negative FCF margin of -6.3% indicates the company is not converting revenue into actual cash despite profitability
- Minimal cash position (86K) creates vulnerability despite low absolute debt levels, limiting financial flexibility
- Extremely low ROE (6.6%) and ROA (4.2%) suggest inefficient capital deployment and limited returns to shareholders
Key Metrics to Watch
- Operating cash flow trend and reconciliation with net income to verify earnings quality
- Working capital components (receivables, inventory, payables) to identify source of cash flow deterioration
- Revenue growth and gross margin sustainability in upcoming periods
- Capital expenditure levels relative to depreciation and cash generation capacity
Financial Metrics
Revenue
47.8M
Net Income
4.0M
EPS (Diluted)
$0.41
Free Cash Flow
-3.0M
Total Assets
94.2M
Cash
86.0K
Profitability Ratios
Gross Margin
38.1%
Operating Margin
7.0%
Net Margin
8.4%
ROE
6.6%
ROA
4.2%
FCF Margin
-6.3%
Balance Sheet & Liquidity
Current Ratio
2.60x
Quick Ratio
1.32x
Debt/Equity
0.14x
Debt/Assets
36.0%
Interest Coverage
49.99x
Long-term Debt
8.4M
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-03-24T20:30:13.310115 |
Data as of: 2026-01-31 |
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