FEIM Stock: A Record Backlog and an Ugly Quarter — Buy the Dip?

Frequency Electronics (FEIM) Q4 FY2026 — Frequency Electronics (FEIM) — a niche maker of atomic clocks and precision timing for satellites, missiles and secure military comms — reported an ugly fiscal Q4: gross margin collapsed to ~1% (vs a normal ~30%) and EPS came in at -$0.50 versus a +$0.27 estimate, a big miss, on a $3.8M Elcom inventory write-down and pre-revenue investment. Strip the one-offs and adjusted gross margin was ~36%. Backlog hit a record $111M, and management reaffirmed a $150M FY2029 revenue target. After a run from ~$20 to $80, the stock trades near $51 — above Wall Street's ~$44 target. How does a company post a 1% gross margin and a record order book in the same quarter? Frequency Electronics makes the ultra-precise atomic clocks and oscillators that keep satellites, missiles and military radios in sync — a tiny, hard-to-replace niche. Its GAAP Q4 looked like a disaster (EPS -$0.50 vs +$0.27 expected, gross margin ~1%), but that was mostly a one-time $3.8M inventory write-down plus pre-revenue investment; adjusted gross margin was ~36%. Backlog is at a record $111M and management targets $150M revenue at 50% gross margins by FY2029. The catch: after quadrupling to $80 and settling near $51, the stock trades at ~8x sales — above even Wall Street's ~$44 target — with cash down to $1.6M. Our call: HOLD, 3/5. Fair value ~$44, modestly below the price. A wonderful little niche that already believes its own best-case future. Not financial advice. THE CALL: HOLD (3/5, A REAL STORY, BUT THE PRICE ALREADY BELIEVES IT) — base-case value ~$44 vs ~$51.51 today. What to watch: gross margin recovering back toward 30%+ over one or two clean quarters (proving the Q4 charge was one-time), the record $111M backlog converting to revenue without fresh write-downs, and a pullback toward or below the ~$44 Street target Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.