Apogee Enterprises: An Undervalued Stock With Solid Financials (NASDAQ:APOG)

Investment Thesis

Apogee Enterprises, Inc. (NASDAQ:APOG) recently posted Q3 FY23 results. Their income and revenue rose significantly. I will analyze their quarterly results in this report and discuss the company’s future growth. I believe APOG is undervalued compared to its competitors and a better investment option, so I assign a buy rating on APOG.

About APOG

APOG develops glass and metal products in the U.S., Brazil, and Canada. They operate in four segments: Architectural glass, Architectural services, Architectural framing systems, and large-scale optical technologies. In the architectural framing systems segment, they design, engineer, and finish the aluminum frames used in curtain walls and entrance systems. In the architectural services segment, they offer full-service installation of the walls of glass. In the architectural glass segment, they fabricate high-performance glass used in wall systems. In the LSO segment, they manufacture acrylic products for framing and display applications. APOG was founded in 1949 and is based in Minneapolis, Minnesota.

Financial Analysis

APOG recently posted its Q3 FY23 results. They beat the market EPS estimate by 10% and the market revenue estimate by 1.49%. The reported net sales for Q3 FY23 were $367.8 million, an increase of 10% compared to the net sales of Q3 FY22. I believe the primary reason behind the increase was the growth in the revenue of two segments: architectural framing systems and architectural glass. The net income for the Q3 FY23 was $23.7 million, a significant increase of 115% compared to the Q3 FY23. The diluted EPS for the Q3 FY23 was $1.07, an increase of 143% compared to the Q3 FY22.

APOG outperformed in two segments: architectural framing systems and architectural glass. The revenue of architectural framing systems in Q3 FY23 was $165 million, an increase of 16.6% compared to Q3 FY22. The revenue of architectural glass in Q3 FY23 was $81.5 million, an increase of 9.7% compared to Q3 FY22. The increase in this two-segment led to increased revenue and income for the company. But the other two segments saw a slight decline in their revenues. The revenue of architectural services for the Q3 FY23 was $102 million, a drop of 3.2% compared to the Q3 FY22. The revenue of large-scale optical for the Q3 FY23 was $26.7 million, a decrease of 2.5% compared to the Q3 FY22. Still, the operating income of large-scale optical rose by 18.3%, reflecting lower operating costs which is a positive sign. In my view, the financial performance of APOG in Q3 FY23 was pretty impressive

Technical Analysis

APOG is trading at the level of $43.87. It has been consolidating in the range of $36-$50 for the last 21 months. In my view, one should wait for the stock to break the level of $50. If the stock breaks the level of $50 in a weekly time frame, then it can move up to the level of $61, giving returns of 20%. One can also enter the stock at the level of $35 because the stock has formed a strong support zone in that area. One should keep a close eye on this stock because it has been consolidating for a long time. If it gives a breakout, it might become very bullish because if a stock consolidates before a breakout, the likelihood of the breakout failing is very low.

Should One Invest In APOG?

The revenue estimate of APOG for FY23 is $1.44 billion, the highest in the last ten financial years. The FY23 revenue estimate is 10% higher than the FY22 revenue. With growing revenues and demand in each segment, I believe they will achieve the revenue targets; with improving operating costs, their net income will also increase in upcoming quarters.

APOG has a P/E (FWD) ratio of 11.07x compared to the sector ratio of 15.96x. A PEG ratio in the range of 0.5-1 is considered suitable for a company, and APOG has a PEG (FWD) ratio of 1.04x compared to the sector ratio of 1.46x. The same goes for the Price / Sales ratio; anything between 0.5-1 is considered suitable for a company. They have a Price / Sales (FWD) ratio of 0.68x compared to the sector ratio of 1.25x. Every ratio shows us how undervalued the company is. APOG ticks all the boxes, and the valuation shows it can be a great investment opportunity.

Even the shareholding pattern of APOG looks impressive. Institutions own 93.1% of the shares in the company, which is a positive sign for investors. It shows the trust institutions have in the company. This is why we see less volatility in the price fluctuations of APOG shares.

Risk

Their three segments, architectural glass, architectural framing systems, and architectural services, are highly influenced by North American economic conditions. Their major revenues come from the North American construction industry, which is cyclical in nature. Macroeconomic trends like employment levels and interest rates impact the construction industry. An unfavorable change in these factors could affect the company’s business and its balance sheet.

Bottom Line

Apogee Enterprises, Inc.’s net income has doubled in Q3 FY23, and their revenues are also growing every quarter which shows their growth potential. If we compare them to the industry standards, they are undervalued, and they have provided optimistic FY23 and FY24 revenue guidance. So after analyzing all the parameters, I believe APOG is a great investment opportunity and can provide significant returns in 2023. So, I assign a buy rating on Apogee Enterprises, Inc.