Red Cat Holdings Takes Flight, SRR Contract Could Propel Shares Even Higher

seekingalpha11-03

Red Cat Holdings’ biggest growth driver relies on landing the US Army's SRR T2 contract, which could increase revenue by up to $79 million in the next year.The company projects 2025 revenue between $...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2480395623?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1736537775/image_1736537775.jpg","is_english":true,"pubTime":"2024-11-03 21:30","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2480395623","market":"us","top_or_hot":-1,"title":"Red Cat Holdings Takes Flight, SRR Contract Could Propel Shares Even Higher","media":"seekingalpha","content":"<div>\n<p>Red Cat Holdings’ biggest growth driver relies on landing the US Army's SRR T2 contract, which could increase revenue by up to $79 million in the next year.The company projects 2025 revenue between $...</p>\n\n<a href=\"https://seekingalpha.com/article/4732546-red-cat-holdings-takes-flight-srr-contract-could-propel-shares-even-higher\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Red Cat Holdings Takes Flight, SRR Contract Could Propel Shares Even Higher</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nRed Cat Holdings Takes Flight, SRR Contract Could Propel Shares Even Higher\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-03 21:30 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4732546-red-cat-holdings-takes-flight-srr-contract-could-propel-shares-even-higher><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Red Cat Holdings’ biggest growth driver relies on landing the US Army's SRR T2 contract, which could increase revenue by up to $79 million in the next year.The company projects 2025 revenue between $...</p>\n\n<a href=\"https://seekingalpha.com/article/4732546-red-cat-holdings-takes-flight-srr-contract-could-propel-shares-even-higher\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4157","symbol_name":"电子设备和仪器","start_time":0,"source_url":"https://seekingalpha.com/article/4732546-red-cat-holdings-takes-flight-srr-contract-could-propel-shares-even-higher","article_id":"2480395623","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1736537775/image_1736537775.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2480395623","pubTimestamp":1730640600,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Red Cat Holdings’ biggest growth driver relies on landing the US Army's SRR T2 contract, which could increase revenue by up to $79 million in the next year.The company projects 2025 revenue between $5","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4157":"电子设备和仪器","RCAT":"Red Cat Holdings Inc."},"translate_title":"红猫控股公司起飞，SRR合同可能推动股价进一步走高","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"RCAT":0.9},"content_text":"Red Cat Holdings’ biggest growth driver relies on landing the US Army's SRR T2 contract, which could increase revenue by up to $79 million in the next year.The company projects 2025 revenue between $50-$55 million even without the SRR T2 contract, which is a significant increase from the TTM revenue of $18.9 million.Since joining the Russell Microcap Index, RCAT’s visibility has jumped, pushing its share price up over 100% as new institutional investors discovered the company.New drones like the Edge 130 Blue and FANG could capture a strong market share in defense and tactical missions.I rate RCAT as a strong buy as I believe the potential upside from winning the SRR T2 contract far outweighs any downside risk.   Diy13 Red Cat Holdings, Inc. (NASDAQ:RCAT) has seen its share price jumping by 180% since July this year, with a recent pullback after reaching all-time highs in October. The company’s growth took off after launching the Teal 2 drone in April 2023, however, it has only gained visibility in June this year, after its inclusion in the Russell Microcap Index. Considering that the nearest catalyst could be materialized before the next earnings release on December 13, I considered reviewing in this article the different growth drivers that make this company a strong buy. Among them are the product line expansion plans of the company, including new UAVs like the recently acquired Edge 130 Blue for extended ISR and the tactical FANG drone. Additionally, their newly completed Salt Lake City facility will play a key role in successfully fulfilling large contracts. Speaking of large contracts, the key growth driver in my bull thesis is the SRR T2 contract. If the company wins this contract, I believe the upside could be several times more than the downside. Before diving into these factors, I’d like to start with the recent price action. Price Action Over the last 2 years, the company has outperformed the S&P 500 by 74.6%.   stock roverThe daily chart below shows the share price jumping by 180% since July this year, with a pullback from all-time highs reached in mid-October.   TradingViewEarlier this year, in June, the company joined the Russell Microcap Index. In the following weeks, the share price jumped by over 100% as more and more investors discovered the company. Teal 2 UAV Has Driven Strong Revenue Growth The income statement shows an impressive 260% increase in total revenue over the last 12 months. The launch of the Teal 2 UAV in April 2023 drove a substantial increase in product revenue from the DoD. This is a drone designed for ISR, optimized for nighttime operations. As a side note, out of 37 manufacturers, only Teal and one other company, Skydio, were shortlisted for the US Army's SRR T2 (Short Range Reconnaissance Tranche 2) program. The final production award announcement is expected by the end of 2024. So, here we have a big catalyst. As of May 2024, Teal had completed all contractual milestones for SRR T2, a contract valued at $5.7 million. Additionally, in March 2024, Teal was awarded contracts with NATO Allied Countries valued at $2.5 million. In September last year, Teal was awarded a $1.8 million contract to supply 106 Teal 2 drones (along with spare parts) to the US Border Patrol. In October 2022, the same government agency ordered 54 Teal drones at just over $1 million. As a side note, US government agencies including the Department of Homeland Security and the US Customs and Border Protection have a BPA (Blanket Purchase Agreement) valued at $90 million over a period of five years. This was established back in December 2021. The \"Family Of Systems\" Product Line In February this year, the company sold its consumer segment for $20 million to focus solely on expanding its military segment.  Aside from Teal 2, and its newer version, the Teal 3, the company has other UAVs in its portfolio. The Edge 130 Blue is a Hybrid VTOL for extended ISR missions. It was acquired through the acquisition of FlightWave Aerospace. Approximately, 50% of the company's backlog includes orders for the Edge 130 Blue. In 2025, the company expects to ramp up the production of this UAV (along with Teal 3), with a profitability goal to achieve over 50% gross margins over time. Aside from these two new drones, RCAT is working on the FANG drone (not to be mistaken for the FANG stocks). This is an FPV drone equipped to carry and deploy precision payloads for tactical missions that require precise engagement of targets. Outlook Management expects revenue for calendar year 2025 to be between $50 million to $55 million, without factoring potential wins in military contracts (like the SRR program or new NATO orders). As a side note, the company is transitioning to a calendar year reporting cycle starting in 2025. So far, in Q1 FY25 (the last quarter) they achieved a 59% YoY increase in revenue, adding up to 2.8 million in sales.  The company's backlog sits at $13 million, with most orders expected to be shipped by the end of 2024. As I mentioned before, the company has a long term goal of achieving a gross margin profitability of 50%. However, in Q1 2025, the gross margin was negative, mainly due to SRR prototype deliveries. The balance sheet shows $7.7 million in cash, supplemented by an additional $8 million in debt financing secured recently. Additionally, the company has no repayments on this debt financing until the end of the year, which aligns quite well with anticipated cash inflows from UAVs deliveries.  Additionally, there is a major catalyst ahead. RCAT is one of the two finalists in the US Army’s Short Range Reconnaissance Tranche 2 Program. The SRR program's initial orders alone could be substantial, with management's estimates of up to $79 million in FY 2025 from this contract alone. How I Can Be Wrong In my view, the biggest risk to my bull thesis is losing the SSR T2 contract. I believe the recent excitement among shareholders is largely because they expect the company to secure this contract. A quick look at the ATM calls contracts expiring in January 2025, shows an implied volatility of 142%. Another risk that I see is the company's negative cash from operations, with $2.3 million used in Q1 FY25 alone. Their reliance on the recent $8 million debt to cover operational costs is a major risk if major contract payments are postponed. Additionally, there are risks with scaling operations if the company does secure the SSR T2 contract. Their brand new 250,000 sqft manufacturing facility in Salt Lake City is targeting 200-300 drones per month, with the potential to scale up to thousands per month. However, as an aeronautical engineer, I can confirm that ramping up production is not an easy task, and it should be overlooked. Valuation Considering the significant increase in the share price over the last 6 months, most valuation ratios are close to the 2-year maximum.   stock roverWhen compared to some of its peers (though not all are direct competitors), the company looks overvalued, especially if we use P/B as the comparison metric.   stock roverConclusion To wrap up, I maintain a strong buy for this company due to its recent strong growth in the defense drone market, and the presence of a strong catalyst by the end of this year. On the positive side, I remain impressed with the 260% revenue growth over the past year. Since joining the Russell Microcap Index, RCAT has gained visibility among institutional investors, driving the share price up by over 100% in just a few weeks. The upcoming SRR T2 contract with the US Army could be a game changer, potentially adding up to $79 million in revenue next year. Without this contract, management is expecting 2025 total revenue between $50-$55 million, with long term plans to achieve 50% profit margins. On the negative side, if RCAT doesn’t land the SRR T2 contract, there could be a drop in the share price since much of the current excitement for the stock depends on winning this contract. Additionally, RCAT is burning cash from operations, relying on an $8 million loan to keep the lights on. Therefore, if customer payments are delayed, this could put a strain on the company's finances.  However, if the company secures the SRR T2 contract and successfully delivers the Teal 3 and the Edge 130 Blue as required, I believe the potential upside will far exceed any downsides.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2480395623"}