Capitulation in Kornit’s digital market could lead to a rebound
Kornit (NASDAQ: KRNT† turned out to be perfectly set for the time but times changed too fast and that story is played out. The company manufactures, markets and services a range of digital printing applications for the textile and packaging industry† The company’s offerings are industry-leading and linked through smart connections that allow complete control at the touch of a button. The problem for the company now is that end-market efforts to reduce inventories and a sudden slowdown in capital projects deep into its second half results have brought the company’s growth to a halt.
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“The overall recalibration of e-commerce growth, coupled with macroeconomic headwinds that accelerated significantly in the last few weeks of the quarter, as well as delays in the completion of customer manufacturing facilities, resulted in a significantly slower pace direct-to-order apparel (DTG) systems in the second quarter compared to our previous expectations,” said Ronen Samuel, Chief Executive Officer of Kornit Digital. “We have entered a period where some of our customers are experiencing overcapacity that has built up over the two-year pandemic period, which we expect to continue in the near term.”
Kornit is a rebound in the making
Chances are, the company is expected to recover in early 2023, if not later this year, putting the sell-off in a new perspective. In our view, the market expected and got bad news. The sell-off is a major capitulation in the market and one that could easily lead to a relief, if not an actual rebound. In the longer term, the outlook for this company is robust due to the nature of its business. Digital printing solutions will revolutionize the industry.
“We see meaningful post-pandemic opportunities with major brands and retailers shifting production from mass analog offshore manufacturing to short-term, near-shore manufacturing, and we believe Kornit is well positioned to capitalize on these trends.” Mr. Samuel added.
The analysts stay achieve their goals but the community’s long-term vision is still optimistic. The 6 analysts with the current ratings are holding on to a moderate buy despite the two new cuts from buy to neutral. However, the real takeaway is the price target which was also trimmed. The most notable point here is that the new low price target of $26 expects about 20% of the upside potential from these new low stock prices, while the consensus target is aiming for triple digit gains.
“We are maintaining our Buy rating because we believe the bad news has now been announced and digital textile printing is still in its infancy,” Citigroup analyst Jim Suva wrote in a note to customers, as he lowered the company’s price target. up to $50.
The institutions see potential in Kornit
The institutions see potential also in Kornit. In the past year, the institutions have bought a number of shares worth about 30% of the current market capitalization and own more than 90% of the shares. That figure could grow now that the stock is trading at such a big discount, but that remains to be seen. As it stands, the stock is trading at its lowest level since the start of the pandemic and could move lower. A breach below the USD 22 level would be bearish and could lead to another 50% decline or more. However, if the market is able to establish support at or near current levels, we will see the stock move sideways until there is positive business development. 