K-Tig’s awesome welding technology provides investment opportunities

K-TIG has an awesome technology

K-TIG Limited (ASX: KTG), based in Adelaide, is a technology company that develops, manufactures and deploys industry disrupting welding technology. The company works across a range of applications and its technology works with various corrosion-resistant materials, such as stainless steel, nickel alloys, titanium alloys and more exotic materials. It easily handles longitudinal and circumferential welds on pipes, spooling, vessels, tanks and other materials in a single pass.

K-TIG was re-listed on ASX in October 2019 with a new licensing revenue model, providing Welding-as-a-Service (WaaS) to ensure long term recurring revenue generation and strategic relationships with customers.

Ever since it listed the company has been able to report increasing revenues and an expanding customer base. We wrote about K-TIG and its great technology in our Small Cap Stocks Down Under edition of 19 November 2021.

 

The story of K-TIG

Let’s start with the chart and see what moved the share price.

 

❶ March 2020 Quarter activity report shows some early success with the WaaS business model.

❷ K-TIG signs MoU with leading Australian defense contractors.

❸ K-TIG raises $5.6m at 25 cents per share.

❹ Company’s December 2020 quarterly update shows increased sales, including its first sale into the USA nuclear decommissioning industry.

❺ March 2021 quarterly activities report shows increased sales revenue.

❻ December 2021 quarterly report shows significant increase in sales revenue. Stock breaks the downward trend.

 

The first few announcements in calendar year 2020 showed the market that the new WaaS business model is working. That led to the rally in the price, which started in mid-December 2020 and lasted until March 2021.

Since then, the market has gone into the “That’s nice, now show us the money” mode. The price went into a correction phase and further reports of increasing sales revenue and MoU’s failed to reverse the direction of the trend.

 

K-TIG is once more showing its potential to the market

However, the latest quarterly activities report showed a massive jump in revenues and cash receipts. The initial market reaction to this report was to break the downtrend and to bring back some momentum to the share price.

K-TIG’s technology has been proven effective and the customers seem to have accepted the company’s new WaaS business model. This tells us that it’s only a matter of time for the value of the underlying business to be reflected in the financials and, accordingly, K-TIG’s share price.

 

The risks

Although the increase in revenue was significant, there was a proportionate increase in the costs reported as well. This means the company needs more time to find enough customers to become cash positive. Time costs money and we believe the company only has enough cash for another two quarters, at maximum. So, another capital raise is may be around the corner.

 

Our suggested action plan

We like the company and like most investors, we prefer to buy the shares as cheap as possible. Given all that has been mentioned in this article and the current bear market we are experiencing at the moment, chances are for the share price to retrace to 30 cents region and maybe test the recent breakout. That would be the ideal level to buy into the stock.

75% of the purchase can be made by putting buy limit orders in the 28 to 32 cents range. The remaining 25% can be bought at the current market price. This is in case the stock’s momentum keeps pushing the share price higher, which reduces the chances of our buy limit orders getting filled at our desired levels.

A downward break below 26 cents signals significant selling pressure and bearish sentiment. In that case we should start limit our losses and sell.

 

 

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Frequently Asked Questions about K-Tig

• Does K-tig pay a dividend?

  No, K-tig is using its cash to drive revenue growth and does not pay a dividend.

• What is so special about K-Tig’s technology?

  Using K-Tig’s technology, customers can do welding jobs in minutes that would take many hours using existing technologies.

• Is K-Tig an Australian company?

  Yes, the technology was originally developed by CSIRO and the company itself is based in Adelaide.