Pioneering Technology (OTC:PTEFF) ended its most recent quarter on a high note. It increased its sales from a year ago, and its turnaround was working. But then, COVID-19 happened. There is now record unemployment, businesses are reluctant to spend, and there is a lot of economic uncertainty now.

These economic factors do not bode well for Pioneering Technology. The company today is in a sound financial footing with little debt. But it faces a lot of challenges in securing new business.

With a small chance of new business, there is no short-term catalyst for a bump in its stock price. That’s why I believe the stock price is going to remain low for a while.

The F Score Isn’t Great, but Its Balance Sheet Isn’t Terrible

Based on Pioneering Technology’s annual results, its F Score in the last 5 years has never been above a score of 5. Its most recent figure was a 3. This implies its financial statements are on the weaker end:

(Source: Pioneering Technology Annual Financials)

Besides the current recession caused by COVID-19, another headwind facing the company is the 25% import fee. Every unit of inventory it imports from Canada is subject to a 25% tariff payable by the company. This has increased the cost of doing business, making it harder to compete in the marketplace.

What I do like about the company is its low debt ratio and its large cash holdings. The cash position is going to play a huge role in making through the recession. Below is what I forecast to be a worse case scenario where sales take a plunge and stagnate for the next 3 quarters. Afterwards, sales should begin to improve in Q2-2021:

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(Source: Pioneering Technology Q2-2020 Financials)

I am also forecasting management will look for ways to cut costs resulting in 20% in cost savings from Q3-2020 to Q1-2021. What these projections show is that, although sales will take a hit in the next few quarters, its cash position remains strong enough to weather the storm.

Also, my projections do not anticipate the company borrowing money. But if it does, the debt market is another way to finance its way through this economic downturn.

There is a caveat to the above projections in that it is just an assumption. Its business could be even worse or better than what I have projected.

25% Tariff is a Detriment to the Business

Although sales have improved last quarter just before COVID-19 had hit, the 25% tariff could mean fewer sales from Q3-2020 onwards. Future buyers are going to be price sensitive now that the world’s economy is in a recession. Management has also indicated if the 25% tariff continues, it would have to engage in the following:

(Source: Pioneering Technology Q2-2020 Financials)

The last 2 points involve increasing the price of its products, which will not sit well with its current and future customers. In April 2020, the company had announced Mercy Housing has chosen SmartBurner as its cooking fire prevention solution for its properties. What the article doesn’t mention was, were there any advanced orders from Mercy Housing?

Given the recession and the 25% tariff, I suspect sales are going to fall and remain low for a while.

Investors Will Need to Be Patient

The company is not likely to go bankrupt because of its cash holdings. However, it will be a while before things start looking up for the company. During a recession, when businesses are facing a cash squeeze, I don’t know if anyone is thinking of buying a SmartBurner for kitchen safety.

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I remain bullish in the company, but a turnaround is likely going to be a bit further down the road.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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