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Why Electro Optic Systems Tripled This Year?

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Electro Optic Systems (ASX: EOS) is an ASX listed aerospace and defence company, with its main businesses across both those segments. The company uses lasers to develop systems that improve spatial awareness in space, thereby preventing collisions with space junk. Space junk flies at extremely fast speeds, meaning an object the size of a small pebble could cause damage to a part of a satellite that requires the satellite to be repaired. This is simply down to speed and represents a huge and growing problem within the space industry. The value of satellites is now $1tn, so it is easy to appreciate the importance of what EOS has to offer.

Electro Optic Systems - report
Great product execution and an order backlog drove strong gains in EOS’ share price (Credit: Australian Manufacturing)

They also have a defence business, which supplies the Australian military, as well as allies like the US. They are developing new products that are well-liked by the military and are likely to boost revenue. The advantage of that for EOS is the component parts to modules are easily replaceable, as compared to competitors where the whole module needs to be replaced. This can be beneficial on the front line, where the ease of replacing a component part saves time. Additionally, the products also save money for military clients over the long run, since they don’t need to replace entire systems when something goes wrong.

EOS also introduced a new business segment at the end of the last quarter, which will operate in space communications. The development of this unit was triggered by technology breakthroughs in the company’s research for other business units and represents an exciting opportunity in a rapidly growing industry. Additionally, the acquisition of EM Solutions, an established space communication company, will support the transition.

Nevertheless, at 40.9 times earnings, much of this news is already in the price. Investors will need to consider the company’s valuation carefully since the company needs to execute well to justify the current valuation.




This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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