Recently, DPW Holdings, Inc. (NYSEAMERICAN:DPW) proposed a change its corporate structure to execute its growth strategy better. Notably, the new structure would divide the firm’s areas of interest into two significant industries. The two significant sectors are technology and finance. As such, the holding company would consist of DPW Financial Group and DPW Technology Group.
DPW undergoes corporate restructuring
According to the firm’s management, the simplification of the structure will help them execute their mandate with ease. Notably, DPW Holdings has a specialty in acquiring and growing businesses, which it letter spins off. Further, the corporate restructuring will help investors and other stakeholders to understand key business strategy better. Nevertheless, the holding firm will remain the sole owner of the two broad-based subsidiaries.
This is one of strategy on which DPW is counting to break into the leading status in the industry. Besides, IAM, a wholly-owned subsidiary of DPW announced the intention to open four new locations for Prep Kitchen. Notably, IAM owns the Prep Kitchen chain of restaurants, and it acts as DPW’s foot soldier in the hospitality industry. In particular, the new locations make up the long-term expansion strategy the firm is working on.
According to DPW, in addition to the four other locations, Prep Kitchen will begin experimenting on new restaurant concepts. Further, the IAM intends to open new locations in Southern Nevada, Arizona, and California. Interestingly, all these plans fall into the 2020 grand strategy. Notably, the strategy aims to push IAM presence wide across the United States.
IAM to lead DPW hospitality sector venture
Interestingly, IAM is a strategic asset which will form part of DPW Financial Group. Notably, the firm will form the core of DPW’s hospitality venture. According to Milton “Todd” Ault III, Chairman and CEO of DPW, IAM has “strong leadership” in the hospitality sector. As such, he expects the subsidiary to “capitalize on the exploding San Diego market.”
In light of the robust strategy and sound execution team, the firm reported exceptional financial results for Q3 FY2018. Notably, DPW revealed a 159% increase in revenue compared to the same quarter in 2017. Interestingly, the firm expects its total annual revenue for 2018 to be triple that of 2017. According to Mr. Ault, this is down to the various successes earned over the ended three quarters.
Notably, the Board of Directors approved the restructuring of the company’s corporate structure. On the other hand, two of the firm’s subsidiaries received debt financing to boost their production capacity. In particular, Coolisys Technologies, Inc., a DPW wholly-owned defense contractor has over $17.5 million in order backlog. Also, Enertec Systems 2001, Ltd., a subsidiary of Coolisys Technologies, Inc. and Microphase Corporation Inc. share in the backlog.
The equity market unfair to DPW stock
According to DPW, the debt financing worth $700,000 will go to the companies to expedite order delivery. In this light, DPW estimates the remaining backlog to be worth $7 million in 2019. This will be a massive reduction from the previous overall order backlog of $71 million in 2018. From the remaining order backlog, DPW estimates 40% as the approximate gross profit margin.
Unfortunately, it is apparent that the robust growth strategy, as well as strong financial numbers, are not enough to persuade the equity market to hold onto the company’s stock. Notably, the stock price began to sink in early July 2018. Interestingly, the stock price steadily lost value until it hit the all-time low of $0.10 in late December.
However, it is possible that the stock was merely a victim of the market-wide selloff in the equities sector. Since early this year, many indices are recovering. Interestingly, DPW’s stock is also finally coming out of the one-month long bear market.
With the strategic moves lined up for this year, investors should expect the stock to break above the MA (50).