Stock Sonar #82 - 11/20/2024

nLight (NAS:LASR) — mrkt cap $523mm; Price $10.87; EV/EBITDA NA

PASS. We reviewed nLight (LASR) last week and decided to pass for now. The commercial segment faces significant challenges, and it’s unclear where the bottom might be. While the defense segment is growing rapidly, the way contracts are booked could result in volatile revenue. Additionally, the global defense market for their technology is only around $1.5 billion, and while expanding, it may not be sufficient in the next 12-24 months to offset nLight’s sizable fixed costs. The loss of substantial commercial business could push nLight toward restructuring to achieve profitability. The company is promising, developing in-demand technology, but the current valuation is not yet attractive. Q4 earnings will be a key moment, as we monitor how the market reacts to potential further commercial weakness or defense revenue delays tied to development. Thanks to subscriber Brian M. for bringing this name to our attention.

Clearwater Paper (NYSE:CLW) — mrkt cap $415mm; Price $24.96; EV/EBITDA 10

PASS. Clearwater Paper is a leading supplier of paperboard packaging for the CPG and food industries. The company recently divested its Tissue Paper segment for $1 billion, using the proceeds to reduce debt and repurchase shares, bringing net debt down to ~$200 million. While Clearwater is among the top five paperboard packaging producers in the U.S., the industry faces structural challenges similar to those of the tissue paper segment- overcapacity among scaled producers who can pivot their facilities to manufacture whichever paper-based commodity benefits from favorable cyclical margins. We are passing.

Zeta Global (NAS:ZETA) — mrkt cap $5.2B; Price $22.02; EV/EBITDA NA

PASS. Zeta is a provider of data enrichment and email marketing services, leveraging its data on hundreds of millions of customers to serve clients, primarily in the e-commerce space. Last week, a short report caused the stock to drop 51%. While short reports can drive sharp selloffs, they’re not always based on solid evidence. After reviewing the report, it’s evident that Zeta has acquired companies with questionable data procurement practices, raising potential regulatory risks. However, according to Zeta’s response, these issues affect LSD portion of their revenue. Despite the sharp decline, Zeta’s valuation still remains high, with a P/S ratio near 5x. If anything, the short report has brought Zeta’s valuation closer to a more reasonable level but not enough to be interesting.