We came across a bullish thesis on Bel Fuse Inc. (NASDAQ:BELFB) on Substack by Anshul Puri. In this article, we will summarize the bulls’ thesis on BELFB. Bel Fuse Inc. (NASDAQ:BELFB)’s share was trading at $79.77 as of Jan 8th. BELFB’s trailing and forward P/E were 19.36 and 16.64 respectively according to Yahoo Finance.
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Bel Fuse is making a transformative acquisition with the purchase of Enercon Technologies, a defense company, at a 10.4x EV/EBITDA multiple. Enercon, which produces proprietary parts with impressive 45% gross margins and 34% EBITDA margins, has grown by 25% over the last twelve months. Bel will acquire 80% of Enercon from Fortissimo Capital immediately, with the remaining 20% to be purchased by early 2027. This acquisition is expected to contribute about 18% of Bel’s combined revenue and drive a 40% increase in EBITDA, strengthening Bel’s position in the aerospace and defense sectors and bolstering its growth trajectory.
The deal signals strategic confidence, with CFO Farouq Tuweiq playing a pivotal role. There was concern over whether Daniel Bernstein, the founder’s son, might steer the company back to its former strategies, but this acquisition highlights sound decision-making and discipline under current leadership. While Enercon wasn’t acquired at a bargain price, the quality of the company justifies the valuation. The acquisition helps reduce Bel’s cyclicality, strengthens its aerospace and defense exposure, and diminishes its reliance on China.
Enercon’s sales are geographically diversified, with 50% of revenue coming from North America, 40% from Israel, and 10% from the rest of the world. The company provides specialized power and networking equipment that is essential for keeping military systems operational in harsh environments, including components critical for tanks, planes, ships, and radar systems. Enercon operates in three key product categories: Power Solutions, Power Management Systems, and Networking Solutions, all of which are integral to military operations.
Following this acquisition, aerospace and defense will become Bel Fuse’s largest end market, now representing 31% of its LTM sales. Enercon’s superior margins will significantly improve Bel’s overall profitability and operating leverage, with an estimated combined EBITDA of approximately $150 million for FY25. This acquisition is highly accretive and positions Bel Fuse for continued growth and multiple expansion, with a target share price of $118.
Bel Fuse Inc. (NASDAQ:BELFB) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held BELFB at the end of the third quarter which was 13 in the previous quarter. While we acknowledge the risk and potential of BELFB as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BELFB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.