Parabolic rise after significant sideways movement.Technical and Sector Analysis of CPS Technologies Corp. (CPSH)
CPS Technologies Corporation shows promising growth in several areas while technically being in a consolidation phase. The company underwent significant transformation in the fourth quarter of 2024, successfully replacing its expiring military armor contract with new business areas and having several promising research and development projects that could offer growth opportunities in the long term.
Financial Situation and Performance
Fourth Quarter 2024 Results
CPS Technologies Corp. reported revenue of $5.9 million in the fourth quarter of the 2024 fiscal year, down from $6.7 million in the same period last year. The decline is attributed to the completion of the HybridTech Armor® contract for the U.S. Navy. Notably, revenue increased significantly by about 40% compared to the previous quarter, due to expanded production capacity and increased shipment volumes.
In the fourth quarter, the company recorded a gross loss of $0.3 million (-4.6% gross margin) and a net loss of $1.0 million (-$0.07 per share), compared to a net income of $0.2 million in the previous year. This performance decline is partly due to the completion of the armor contract and start-up costs related to the production of AlSiC substrates.
Annual Financial Indicators
For the full fiscal year 2024, CPS Technologies reported revenue of $21.1 million, a 24% decrease from $27.6 million in 2023. The decline primarily resulted from the completion of the armor contract in April 2024. The annual gross profit was a loss of $0.1 million (-1%), compared to a profit of $6.8 million (25%) in 2023.
Operating results significantly deteriorated: a loss of $4.4 million was recorded in 2024, compared to a profit of $1.7 million in 2023. The net result was a loss of $3.1 million in 2024, compared to a profit of $1.4 million in 2023, despite a tax benefit of $1.0 million. The basic loss per share was $0.22, compared to earnings of $0.09 per share in 2023.
Key Contracts and Projects
After the fourth quarter, the company secured three new Phase I SBIR (Small Business Innovation Research) contracts from the U.S. Army, each worth $250,000 over six months. This brings the total to six externally funded programs, including five SBIR projects. Two of the new contracts focus on artillery developments, and one aims to enhance the fuel efficiency and extend the range of military vehicles using the company's fiber-reinforced aluminum (FRA) technology.
CPS Technologies also received a significant order worth approximately $12 million from a semiconductor customer for power module components and related solutions. Additionally, the company announced its first commercial radiation shielding sale, marking the first successful product expansion in many years.
Technical Analysis
Stock Price Situation and Volatility
The CPSH stock is currently in a consolidation phase, with reduced volatility over recent times. The closing price on March 24, 2025, was $1.71, representing a 3.93% decline (-$0.07). After market close, the price further decreased to $1.62 (-5.26%).
The stock received a technical rating of 6/10, indicating a moderate technical strength. Although not exceptionally strong, the stock shows a notable pattern and potential for a breakout following consolidation.
Supports and Resistances
Technical analysis identified two key support and two resistance zones. A significant resistance zone starts just above the current price at $1.79. This area could serve as a potential entry point if the price breaks through this resistance.
It is positive that larger market players have shown interest in CPSH shares recently, which could add strength to a potential breakout.
Trading Strategy Example
A possible trading strategy could involve:
Entry point: $1.80 (Buy Stop order just above the resistance zone)
Exit point: $1.51 (Stop Loss order below the support zone)
Potential loss: 0.29 points (16.11%)
Portfolio management: With a 1.00% total portfolio risk, 6.21% of capital could be allocated to this trade
It is crucial to note that the reliability of technical analysis signals depends on market conditions and generally works better in calmer market environments.
Industry and Sector Analysis
Business Operations
CPS Technologies offers advanced material solutions across various markets, including transportation, automotive, energy, computing/internet, telecommunications, aerospace, and defense. The company's primary material solution is metal matrix composites (MMC), used to enhance performance and reliability in these sectors.
Market Position and Strategy
The company's products play a crucial role in the electrification of the green economy, used in high-speed trains, mass transit, hybrid and electric vehicles, wind turbines, and internet infrastructure. This provides diversified revenue streams, helping to offset the expiration of singular contracts like the armor project.
The company's strategy focuses on leveraging its unique material technology capabilities and introducing new products. Developments such as radiation shielding and fiber-reinforced aluminum (FRA) enable the expansion of the product portfolio into promising new areas, including vehicles, aircraft, munitions, and industrial applications.
Research and Development Activities
CPS Technologies actively participates in externally funded research projects, demonstrating its ability to develop unique new solutions. A recent Phase II contract from the Department of Energy (worth $1.1 million) allows the continuation of the "Modular Radiation Shielding for Microreactor Delivery and Use" project.
Additionally, the company received a $200,000 development contract from the U.S. Naval Air Systems Command (NAVAIR) to continue developing metal matrix composite solutions for applications requiring high strength with reduced weight.
Outlook and Conclusion
Future Opportunities
CPS Technologies indicates favorable prospects for 2025. Management is optimistic about future performance, supported by an improving order backlog and growing demand for core products. After initial costs and efficiency challenges associated with introducing a third shift, the company is expected to benefit from increased production capacity.
The company's participation in externally funded research projects and new product areas, such as radiation shielding, offer significant growth opportunities. The strategy focusing on leveraging unique material technology capabilities and introducing new products can create long-term value.
Risks and Challenges
CPS Technologies faces several challenges, including the difficulties of transitioning its business after the expiration of large contracts. The negative gross margin and operating loss in the 2024 fiscal year indicate the need for improved operational efficiency and cost structure.
Industry-wide challenges, such as supply chain disruptions, inflationary pressures, and macroeconomic uncertainties, can also impact the company's performance. The success of technological developments and entry into new markets is not guaranteed.
Investment Considerations
The CPS Technologies stock is currently in a consolidation phase with moderate technical strength. The company's financial performance in 2024 deteriorated compared to the previous year, but the fourth quarter showed improving trends, and management is optimistic about 2025 prospects.
For investors, CPSH offers growth potential through new product developments and government contracts, but also poses risks due to recent losses and uncertainties during the transition period. The diversified industry presence and participation in the green economy are long-term positive factors, while the stock's current technical picture suggests potential for a breakout following consolidation.
