TAT Tech: Improving Operations, Overpriced Outcome
Tips E-16: A 1-minute summary of my fundamental analysis of TAT Technologies Ltd. (NASDAQ: TATT)
Investment Thesis
After years of modest progress, the company delivered sharp revenue and profit improvements from 2023 onwards. However, persistent underperformance versus peers, an unsustainably high reinvestment rate, and zero margin of safety at current prices make it unattractive for long-term value investors.
Main Business
TAT Technologies provides aerospace thermal management, power systems, and MRO services across OEM and aftermarket segments.
Growth
From 2013 to 2022, revenue grew at a modest pace, but growth surged to 35% in 2023 and 34% in 2024. With no acquisitions since 2015, this growth appears organic and supported by expanding aerospace thermal and MRO markets.
Profitability
Gross margins improved alongside declining SGA and fixed cost ratios, lifting operating profits and returns to multi-year highs. These improvements appear execution-driven and repeatable, but profitability levels still lag peers, indicating that the turnaround, while real, remains incomplete.
Financial Strength
The balance sheet is moderately sound, but weak cash flow conversion and high reinvestment intensity raise sustainability concerns.
Peer Performance
Despite recent improvements, TAT Technologies has historically underperformed peers across returns, margins, and cash flow metrics.
Valuation
Using a multi-stage FCFF model with strong growth and margin recovery assumptions yields an intrinsic value well below the current share price. The valuation depends heavily on sharp reinvestment efficiency improvements that lack historical support, leaving no buffer for execution risk.
For more insights and valuation details, refer to the original article on Seeking Alpha titled TAT Technologies: A New Phase Of Growth, But Valuation Stretches The Case
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Disclaimer & DisclosureI am not an investment adviser, security analyst, or stockbroker. The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies. Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them.
The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such.
I may have equity interests in some of the companies featured.
This blog is reader-supported. When you buy through links in the post, the blog will earn a small commission. The payment comes from the retailer and not from you.
Disclaimer & Disclosure
I am not an investment adviser, security analyst, or stockbroker. The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies. Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them.
The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such.
I may have equity interests in some of the companies featured.
This blog is reader-supported. When you buy through links in the post, the blog will earn a small commission. The payment comes from the retailer and not from you.
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