The crisis of confidence in the banking industry has somehow been contained with an assurance to all depositors, the announcement of a new lending program for banks, 11 banks depositing $30 billion in the First Republic bank, and a shotgun wedding between the besieged Credit Suisse and UBS.

However, since it may be a matter of time before hidden and deferred systemic tail risks resurface and cause widespread panic, it could be wise to invest in fundamentally strong technology stock Bel Fuse Inc. (BELFB) with tangible products, visible business prospects, and a little more skin in the game.

While interest-rate hikes by central banks were blunt bullets with which the banking industry has shot itself in the foot, the resulting asset devaluations during the past year have made technology stocks such as BELFB more attractively valued.

The company designs, manufactures, and markets a range of products that protect and connect electronic circuits. It operates through three segments: Connectivity Solutions; Power Solutions and Protection; and Magnetic Solutions.

The stock has gained 3.5% over the past month and 43.6% over the past six months to close the last trading session at $36.27.

Let’s discuss what makes it worthy of investment.

Healthy Track Record

Over the past three years, BELFB’s revenue increased at a 9.9% CAGR, while its EBITDA has grown at a 54.1% CAGR over the same time horizon.

Moreover, BELFB’s total assets also increased at a 6.1% CAGR over the past three years.

Record-Setting Financial Performance

For the fiscal fourth quarter (ended December 31), BELFB’s revenue came in at $169.20 million, up 15% year-over-year. During the same period, the company’s gross profit increased 33.7% year-over-year to $52.51 million, while its adjusted EBITDA increased 63.2% year-over-year to $25 million.

As a result, BELFB’s non-GAAP net earnings increased 99.2% year-over-year to $16.86 million. This has translated to non-GAAP net earnings of $1.27 and $1.35 per Class A and Class B share, up 95.4% and 95.7% year-over-year, respectively.

For the fiscal year (ended December 31), BELFB’s revenue came in at a record $654.23 million, up 20.4% year-over-year. During the same period, the company’s gross profit increased 36.5% year-over-year to $183.45 million, while its adjusted EBITDA increased 93.8% year-over-year to a record $83.03 million.

As a result, BELFB’s non-GAAP net earnings increased 182.8% year-over-year to $57.29 million. This has translated to non-GAAP net earnings of $4.36 and $4.61 per Class A and Class B share, up 181.3% and 179.4% year-over-year, respectively.

BELFB’s total assets stood at $560.47 million as of December 31, 2022, compared to $511.85 million as of December 31, 2021.

Impressive Profitability

BELFB’s trailing 12-month gross profit margin of 28.04% is 14.7% higher than its five-year average of 24.45%.

Similarly, the company’s trailing-12-month EBITDA and net income margins of 12.96% and 8.05% are 31.4% and 197.4% above the respective industry averages of 9.87% and 2.71%.

Moreover, BELFB’s trailing-12-month ROCE, ROTC, and ROTA of 22.37%, 12.04%, and 9.40% compare favorably to the respective industry averages of 2.65%, 2.06%, and 0.67%

Attractive Valuation

Despite the uptrend in its price, BELFB’s stock is trading at a discount compared to its peers, indicating a potential for further upside.

BELFB’s forward P/E of 8.85x is 57.7% below the industry average of 20.90x. Similarly, its forward EV/Sales and EV/EBITDA multiples of 0.81 and 6.84 are 70.7% and 49.9% below the respective industry averages of 2.76 and 13.65.

Moreover, BELFB’s forward Price/Sales multiple of 0.70 also compares favorably with the industry average of 2.70.

Optimistic Outlook

BELFB ended the fiscal year 2022 with a backlog of orders of $565 million, an increase of 21% from the 2021 year-end level.

Analysts expect BELFB’s revenue and EPS for the first quarter of the fiscal year ending March 31, 2023, to increase 7.1% and 95.1% year-over-year to $146.49 million and $0.80, respectively.

Moreover, BELFB has surpassed consensus EPS estimates in each of the trailing four quarters.

POWR Ratings Reflect Investment Worthiness

BELFB’s fundamental strength is reflected in its overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. BELFB also has A grades for Value and Sentiment, consistent with its attractive valuation and positive outlook.

BELFB also has a B grade for Growth and Quality, in sync with its impressive track record, profitability, and capital discipline.

Unsurprisingly, BELFB tops the list of 42 stocks in the Technology – Electronics industry.

Beyond what has been discussed above, additional ratings for Stability and Momentum of BELFB can be found here.

Striking A Balance

BELFB’s CFO Farouq Tuweiq expressed his excitement regarding the company’s investment in Germany-based innolectric AG. He also added that the association would bring the next generation of fast-charging technology to their eMobility power offerings, which BELFB views as a promising growth sector.

While the company’s focus for fiscal 2023 will be on profitable growth by investing in key and high-growth market segments, BELFB’s President and CEO Daniel Bernstein emphasized that “maintaining continuous pricing and cost discipline” in all operations remains an integral part of the company’s culture.

Bottom Line

With robust fundamentals, a healthy order book, and a future-focused, yet fiscally disciplined management, BELFB could be a safe and rewarding bet in a resurgent technology sector.

How Does Bel Fuse Inc. (BELFB) Stack up Against Its Peers?

While BELFB has an overall POWR Rating of A, which equates to a Strong Buy, investors could also consider looking at other A-rated (Buy) Technology stocks: Teradata Corporation (TDC), Box, Inc. (BOX), and Celestica Inc. (CLS).

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BELFB shares were trading at $36.95 per share on Friday afternoon, up $0.68 (+1.87%). Year-to-date, BELFB has gained 12.47%, versus a 7.20% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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