Great Lakes Dredge & Dock (NASDAQ:GLDD) provides excavation services. GLDD published its third quarter FY23 results with a significant drop in revenue. There are some positives and negatives in this quarter. After weighing all the factors, I think GLDD can be dangerous in the short term. So it would be best to avoid it. Therefore, I assign a hold rating to GLDD.
GLDD posted Q3 FY23 results. Revenue for the third quarter of FY23 was $117.1 million, a 26% decrease compared to the third quarter of FY22. The main reason for the decline was lower coastal defense project revenue. Gross profit margin for 3Q23 was 7.7%, up from 2.4% in 3Q22. Management attributed this increase to its initiatives to reduce costs and improve project performance.
Net loss for the third quarter of FY23 was $6.1 million, which was $9.9 million in Q3 FY22. There are some positives and some negatives from Q3 FY23. First, talking about the positive sides, despite a sharp decline in revenue, its profit and gross margins have increased significantly, and if management is successful in maintaining high margins, then the company may be able to profitable life, which it has had ever since. 2022. GLDD’s results can be quite volatile at times, and this is due to the nature of the business it is in. Its income mainly depends on the projects it wins in the tender, and if it is not able to win projects, then its income may drop significantly. So in this regard, there is a positive sign the company’s backlog at the end of September 2023 reached over $1 billion, which was $452.5 million at the end of September 2022, so the increase in waste makes them set for FY24 . GLDD struggled in FY22 due to an unfavorable bid market, but seeing the high backlog and recent project wins is a sign of recovery. In Q3 FY23, they won a Rio Grande LNG project, which is the largest project undertaken by GLDD. So the high backlog, margin improvement and bid market improvement were positive for them. Now, speaking of negatives, it has a market cap of about $460 million, and its long-term debt is about $377 million with only $14.1 million in cash. So, high debt is a worrying issue that may affect its profitability in the future. The second problem with GLDD is that it can be very financially unstable. It can perform well in one quarter, and the results can be overwhelming in the next quarter. There are a number of factors that affect its financial performance, such as the state of the market and the supply chain. It faced supply chain disruptions in 2022 and 2023 due to which its financial performance in FY23 was poor. Its effect can be seen in GLDD’s share price. Fluctuations in GLDD’s share price have become quite volatile. In 2022, it was trading at around $16 and in just one year, it reached $6.9. However, the current supply chain and market conditions appear to be favorable for FY24. It would be interesting to see if management is able to maintain margins in the coming quarters.
GLDD is trading at $6.9. Recently, the stock has fallen by more than 20%, and has broken the important support area of $7.2. The $7.2 level was an important level because even in the time of the COVID-19 crash, the stock did not break the $7.2 level, which shows how strong that level was. So, the stock breaking $7.2 indicates that there is significant selling pressure. The next support area is at the $5.4 level, so seeing the bearish action, the stock price could reach there. Buying the company now can be a risky decision because there is a high chance that the price will fall to the next support zone. So I would advise you to avoid it for now.
Should you invest in GLDD?
Quarterly results were weak. However, there are some signs of recovery, such as backlog growth and strong margins. But investing in it now can be risky due to poor results and bearish price action. Instead, I would wait for the next quarterly results, and if they are able to maintain their margins and increase their revenue, then the situation may improve. But until then, investing in it can be risky. Therefore, I assign a hold rating to GLDD.
Supply chain issues can result in delays that limit their capacity to work on future projects. Due to supply chain issues, their multipurpose, multicast, or “multicast” vessels were delayed in their delivery to 2022. They may charge more for labor and supplies and their capacity to completed projects in accordance with their contractual commitments may be compromised. If the shipyards they work with are affected, they may have to pay more for personnel and materials, delay regulatory sailing, and do general repairs and maintenance on their boats in addition to new construction. Their business may be affected if they are unable to obtain the products or services they need in sufficient quantities and at a reasonable cost. In addition, they may encounter problems with specific suppliers or vendors in their supply chains.
Weak supply market and supply chain issue affected them in FY23. However, backlog growth and margin improvement is a sign of recovery. But despite these positives, investing in it can be risky due to high debt, poor quarterly results and weak technical chart. I think these factors could negatively affect its share price in the short term. Therefore, I assign a hold rating to GLDD.