AML Communications Inc. (AMLJ.OB) is small high-tech stock focused on the defense sector. AMLJ is the leading designer of Micro-Electric Amplifers and Subsystems used in military defense programs. It is a highly specialized market, and the company ends up being the sole source supplier on almost 70% of their contracts. Most programs are long lasting (2-20 years), ensuring repeat revenue.
The stock has turned in 13 straight profitable quarters, and annual revenues have increased from $4.5m in 2003 to $16.3m in 2010, an impressive 20% CAGR. Despite strong competitive advantages and record setting financial performance, the stock is selling at extremely low multiples and a substantial discount to its peer group.
Company Overview
AMLJ is split in two operating segments, but the AML Communications group makes up 97% of revenue and is the main business driver. AML produces solid state microwave power amplifiers across varying frequencies and output power ranges. In today’s world, many high-tech defense products are extremely complicated and require a large amount of customization.
AMLJ specializes in minor variations on their product lines to meet customer requirements while staying well within its core technological niche. Company operations are vertically integrated, from inception -> program definition and design -> manufacturing and marketing.
For these large defense programs, the concept and design stage can take 1-5 years before an initial prototype is produced, so strong (long-term!) customer relationships are very important.
AMLJ has worked with many of the prime defense contractors including BAE Systems (BAESY.PK), Boeing (BA), Lockheed Martin (LMT), Northrop Grumman (NOC), and others. 60% of revenues are generated from long-term defense programs. The other 40% is from the company’s catalog sales, a mail order business with a diverse range of small customers.
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