Here’s why the Electro Optic (ASX:EOS) share price jumped 19% today

The Electro Optic Systems (ASX:EOS) share price rocketed by nearly 19% today. We take a look at what’s been happening for the defence company.

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The Electro Optic Systems Holdings Ltd (ASX: EOS) share price has surged nearly 19% in today’s trading session. By the market’s close, the Electro Optic share price was trading at $5.29.  

Let’s take a look at what’s been happening for the defence and aerospace company.

What fuelled the Electro Optic share price today?

The Electro Optic share price has bounced strongly in today’s trading session. The company’s shares were under pressure late last week after it reported its full-year financial results for FY20.

Apart from a Change of Directors Interest notice, Electro Optic did not release any highly sensitive news today. As a result, we can only posit that investors are reinterpreting the company’s financial results or regarding the fall in its share price as a buying opportunity.

The Electro Optic share price was down more than 9% at one point on Friday, before recovering slightly.

How has the company been performing?

For FY20, Electro Optic Systems recorded a net loss after tax of $25.6 million for the full year. The defence technology company cited the COVID-19 pandemic as having a widespread impact on its operations.

The company noted that travel bans had caused major disruptions to its supply chain. In addition, lower volumes and split shifts reduced efficiencies which resulted in production running at sub-optimal levels.

As a result, investment into inventory resulted in a negative operating cash flow of $109 million for the full year.

Despite reporting a net loss, Electro Optic did highlight a few positives for the period.

The company delivered a 9% increase in revenue to $180 million from ordinary activities. In addition, Electro Optic noted that $40 million in revenue will be pushed into FY21 due to delivery issues in FY20.

The company also cited its strong capital position, with Electro Optic holding $65.9 million in cash and cash equivalents.

Foolish takeaway

Electro Optic Systems specialises in the development, manufacture and sale of various technology platforms. The company operates in three different sectors being defence, space, and communications.

Defence represents the largest revenue segment for the company, comprising more than 80% of its revenues in FY20. 

Electro Optic did not provide guidance for 2021, however the company’s management noted that trading should be more predictable than during 2020.

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Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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