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Why This Stock May Be Worth Watching? - DMC Global Inc. (BOOM)

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Shares of DMC Global Inc. (BOOM) are trading around $43 levels, well off their 52-week high of $76.68. The stock declined in late July from around $62, after lowering revenue guidance for fiscal 2019, in view of lower oil prices and the near-term slowdown in North American well completion activity.

Full-year sales expectations were revised down to a range of $400 million to $415 million, from $405 million to $425 million projected earlier. This number is still higher than the $326.4 million reported in the previous year. Also, the company raised its adjusted earnings per share expectations to $3.55 to $3.7, from prior range of $3.4 to $3.7, vs. $2.07 reported in the previous year.

The major revenue driver for the company is DynaEnergetics, its oilfield products business. For the most recent second quarter, DynaEnergetics generated nearly 80% of total company sales. DynaEnergetics makes and sells advanced explosive components and systems for perforating oil and gas wells.

During the second quarter earnings call, DMC Global said that DynaEnergetics added several new customers for its patented IS2 systems or intrinsically safe initiating systems. These are solid-state devices that contain no internal wiring and will not fire unless they receive a digital key from a control panel, comparing favorably with competing products that utilize detonators triggered with electric current, and thereby more susceptible to electromagnetic interference.

DS Trinity 3.5, a recent model from DynaEnergetics, is currently in field trials in the Permian Basin. This compact system does not require a connecting sub or detonating cord and enables significantly higher perforating intensity than conventional guns.

The company expects demand at DynaEnergetics to soften during the second half of the year, but sees strong prospects for continued growth in the medium and long-term. Despite the lowering of revenue expectations, we believe that the sell-off in the stock is overdone. At the current price of $43.22, the stock trades at around 12X its low-end of FY19 EPS estimate. The stock is well worth watching at current price levels, and has at least 10% upside potential in the next few months.

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