In its 20-F report, filed at the end of June, Eltek reported an large drop in orders from a major customer as from June, a customer who accounted for 17% of the company's first quarter sales of $10.2 million. The customer in question has been switching its products to a newer generation, and as a result Eltek's sales to it will fall significantly in the near future.
On the other hand, Eltek also announced in the same report that it would be investing millions of dollars in ramping up its production capacity, after winning a number of new projects - mostly from foreign customers - which it announced in recent months, and which have higher-than-average profit margins. It is not clear from the report how these two developments will affect the company's results in upcoming quarters.
Given that Eltek is trading at a sales multiple of 0.5 for 2007 as a whole, including the expected downturn, and that its 2008 earnings per share could, I believe, exceed $0.50, meaning an earnings multiple of 7, last week's sell-off was, I feel, totally uncalled for.
ELTK 1-yr chart:
Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.