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Introduction
I have closely monitored US non-lethal weapon maker Byrna Technologies (NASDAQ:BYRN). I have written 4 articles about the company on SA, and my latest one was in July. In that article, I highlighted the company’s strong balance sheet and expected improvements in net revenues due to rising international and dealer sales.
In October, Byrna secured a $6 million order in Argentina. However, I am concerned about the impact of advertising bans on sales. With the market capitalization growing by 52.9% since my previous article, I am now downgrading my rating on the stock to sell. The company appears to be overvalued, and I believe it could be a good time to take profits. Let’s review.
Overview of the recent developments
If you aren’t familiar with the company or my earlier coverage, here’s a short description of the business. Byrna specializes in the design, manufacturing, and sale of non-lethal self-defense guns, ammo, pepper spray, body armor, and personal safety alarms. The company serves both the consumer and security professional markets, and its core products include the Byrna SD launcher, the Byrna LE edition launcher, and the less lethal 12-gauge rounds. It has manufacturing plants in Fort Wayne, Indiana, and Pretoria, South Africa. Byrna also has a joint venture company in Uruguay created in January 2023 to expand its presence in Latin America. Sales have been growing rapidly in recent years, and the company was expecting a 20% growth in 2023.
Unfortunately, FY23 is shaping up to be a weak year for the company. Net revenues are likely to fall over 20% compared to 2022, with sales being negatively affected by supplier issues and production problems. Advertising bans by major social media platforms have significantly impacted sales and revenue. Looking at the financial results for the quarter, net revenues slumped by 43% year-on-year to $7.09 million, while the operating loss almost tripled to $4.11 million. E-commerce sales through Byrna’s website and Amazon went down by $3.3 million to just $4.8 million. The company’s balance sheet is also deteriorating, with the net cash position down to $13.7 million at the end of August compared to $20.1 million in November 2022.
Looking ahead, I believe that Q4 FY23 net revenues could be flat compared to a year earlier, but the overall outlook remains uncertain. Byrna’s international sales are characterized by infrequent but large orders, and the future of e-commerce sales remains uncertain due to ongoing advertising bans. The share price rally over the recent months seems unjustified, and I believe it could be a good time to take profits and consider short selling opportunities.
Considering the upside risks, a lift of the ban on advertising by major social media platforms could provide a significant short-term boost for the share price. However, overall, I think risk-averse investors should avoid this stock.