Mustek – The small-cap tech stock which grew 180% in two years


Mustek’s share price increased from R5.73 in July 2020 to R16.39 two years later, which made it one of the best-performing shares on the JSE during the lockdown.

Mustek’s excellent financial performance over the last 24 months underpinned the rising share price.

Revenue increased from R6.4 billion in FY2020 to R8.0 billion in FY2021, while headline profit grew from R89 million to R306 million over the same period.

Mustek has a good track record of consistently growing revenue and profit, but the 25.6% increase over the lockdown was unprecedented.

The market is now waiting for the company’s latest results to see if it could maintain its 2021 growth fuelled by the work-from-home shift, which increased demand for ICT products.

Mustek’s interim results for the six months to 31 December 2021 suggest that demand remained strong.

It increased its half-year revenue from R3.7 billion to R4.2 billion, and its profit increased from R140 million to R152 million.

If Mustek maintains revenue and profit growth for the first half of 2022, the share may be significantly undervalued.

Between January 2016 and December 2020, Mustek’s average price-to-earnings ratio (P/E ratio) was 6.19. Between January 2021 and July 2022, it declined to 3.37.

It shows that, despite the significant share price increase over the last two years, the company’s earnings outperform the share price. It is illustrated in the chart below.

Mustek P/E ratio (green) versus its share price (blue)

For the P/E ratio to revert to its historical average of 6.19, at the latest earnings per share of R4.25, the share price must increase to R26.32.

Investors doubting Mustek’s ability to maintain its strong revenue growth may explain the lower P/E rating.

However, because Mustek is a small cap stock with low liquidity, it may merely be a result of the company achieving exceptional results relative to previous years.

The company has previously indicated that demand for ICT products remained strong, especially with the home market showing strong growth.

Increased load-shedding in 2022 has also bolstered the sale of Mustek’s alternative energy products, like inverter trolleys and green energy solutions.

Mustek’s FY2022 results will inform the market whether the stock offers great value or whether the impressive growth over the last two years has disappeared.