FRXIF: A Growing Company in a Tough Economy
OTC:FRXIF
READ THE FULL FRXIF RESEARCH REPORT
FRX Innovations (OTC:FRXIF) is a company on the cutting edge of a growing demand for a fire retardant without the potential negative health impacts many of the current retardants have. The company’s Nofia product is endorsed by numerous “green” organizations and customer testimonials are glowing. We believe the safe fire-retardant market is getting ready to explode and the FRX will be a major beneficiary of that projected increase in demand. The disappointing 3Q is a temporary setback in our view and the future looks bright.
FRX Innovations announced 3Q earnings and revenue that were below expectations and disappointing. However, we believe that this is a temporary setback due largely to global macroeconomic factors that FRX had no control over and that will fade as time goes on. Given the reduction in revenue and a lower base to grow from, we have adjusted our growth rate expectations for the company’s revenue, but we still believe investors are failing to recognize the potential this company has.
During the discussion of its 3Q results, management noted that the macroeconomic environment has “significantly weakened.” Inflation and high energy prices hurt companies in the market for the innovative FRX fire retardant known as Nofia. China is a significant market for the company and given the regulations in the country regarding fire retardant the COVID-related shutdowns in the country hurt the 3Q results, but we believe those sales will come to fruition quickly as the Chinese economy starts to reopen. The trend toward government mandates of more environmentally friendly fire retardant in a multiple of products appears to be continuing and while the transition may be slower in coming due to the slowing global economy, we do not believe overall demand will be largely impacted. Having noted these issues, the company reported 3Q results as follows:
• FRX reported 3Q revenues of $397,182, down from just over $1.3 million in the previous quarter.
• This resulted in the company reported a 3Q loss of $1.76 million, or $0.03 per share, below the $0.04 gain that was expected by Zacks.
• The company maintained a good cash balance of $548,000.
• Management made the decision to shut down the plant in Belgium in order to preserve cash flow—anticipating existing inventories are sufficient to meet demand through January 31, 2023, at which time they anticipate returning to full production.
o With help from the Belgian government and a contribution from the company, employees of the plant remain paid in full, which should aid in the company’s ability to restart production.
The results, as discussed above, are disappointing to the company and to shareholders, but we are confident this is a short-lived issue and are pleased with the way that FRX management has handled a difficult stretch. Demand for the Nofia product, in our analysis, will continue to grow at a rapid rate in the coming years as both consumers and governmental entities demand safer fire retardant substances. As such, we continue to believe that FRXIF remains a stock worth a look by investors with a longer time frame and believe that patience will be rewarded.
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