DAKT

We rate DAKTRONICS INC /SD/ (DAKT) as a Buy with a composite score of 72.6/100 at a current price of $27.40. The stock scores above average across the majority of our six quantitative factors and ranks #42 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in quality (90th percentile) and value (82th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (38th percentile) and stability (64th percentile) tempers our overall conviction. We assign a No Moat rating (34/100), Medium uncertainty, and Poor capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

DAKTRONICS INC /SD/ holds an above-average position (#23 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 72.6/100 places it at rank #42 in our full 7,333-stock universe. At $627M in market capitalization, DAKTRONICS INC /SD/ is a small-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

Despite positive momentum (75th percentile), revenue contraction of -3% creates a divergence between price action and fundamental trajectory. This divergence suggests either that the market is looking through near-term weakness or that technical factors are temporarily inflating the stock. Investors should assess whether the revenue decline reflects cyclical weakness or structural challenges.

The margin cascade tells an important story: gross margins of 27% (-15.6pp vs sector) narrow to operating margins of 6% (+5.2pp vs sector) and net margins of 1.0%, yielding a gross-to-net conversion rate of 4%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $27.40, DAKTRONICS INC /SD/ appears undervalued relative to its fundamentals. Our value factor score of 82/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 85.7x (a 285% premium to the sector median of 22.3x), EV/EBITDA of 23.3x (at a premium), P/B of 4.8x, P/S of 1.7x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a Medium uncertainty rating to DAKTRONICS INC /SD/. The stock presents a balanced risk profile: elevated valuation multiple (P/E 85.7x) that leaves limited margin for error and the combination of leverage (95% D/E) and thin margins (1.0% net) amplifies downside risk. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: elevated valuation multiple (P/E 85.7x) that leaves limited margin for error; the combination of leverage (95% D/E) and thin margins (1.0% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 64th percentile and quality factor at the 90th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (64th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate DAKTRONICS INC /SD/'s capital allocation as Poor. Key concerns include suboptimal returns on capital. Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — DAKTRONICS INC /SD/ significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, DAKTRONICS INC /SD/ receives a Buy rating with a composite score of 72.6/100 (rank #42 of 7,333). Our quantitative framework assigns a No Moat (34/100, trend: stable), Medium uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 70/100.

Our analysis supports a constructive view on DAKTRONICS INC /SD/. The combination of the current valuation, medium uncertainty, and poor capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.