With it being a fairly slow news day, we wanted to provide
some color on a stock that has quietly been making new highs lately: Kornit
Digital (KRNT 22.10, +0.00). The company supplies digital printing for the garment, apparel,
and textile industries. Kornit provides digital printing systems, inks,
consumables, software, and after-sales support. Founded and headquartered in
Israel, the company has a global customer base; in 2017, Kornit Digital generated
53.1% of its revenue contributions from the Americas, 28.1% from EMEA, 14.1%
from the Asia Pacific region, and the remaining 4.7% from other regions.
Digital textile printing makes use of specially engineered inkjet heads in order to print images and designs directly onto fabrics, foregoing older processes that require the use of tools like screens and cylinders or mesh stencils. Digital techniques thus eliminate multiple time-consuming and labor-intensive steps that complicate the printing process, such as screen prep or cylinder engraving, preparation of inks or pastes, and alignment processes. Equivalent output can be achieved through digital textile printing with significantly less labor as compared to analog methods because digital involves such a significant consolidation of process steps and reduction of necessary floor space.
The vast majority of printed textile industry output is still made using analog print methods such as screen printing, carousels, and rotary screen printers. In recent years, digital printing has accounted for about 3% of global industry output, but it is growing share quickly, and KRNT is a play on that trend. Digital textile printing has been forecasted to grow at a 17.5% compound annual growth rate (CAGR) globally from 2016 to 2021.
Consumers' tastes are changing more quickly these days; shoppers want a wide range of styles that are innovative and diverse, and the growth of online purchasing ability has driven demand by providing consumers with easy access to an enormous selection of differentiated products. As a result, there is an increased need for brands to improve efficiency in order to remain competitive, as consumers demand more varied product offerings and faster fulfillment of orders.
From a manufacturer perspective, digital textile printing is attractive because it provides flexibility, leaving it well-suited to serve dynamic market trends. A full image or design can be printed on a garment or cut fabric in one manufacturing step as compared to the multiple steps required in an analog printing process. Digital textile printing enables manufacturers to print small runs, with personalization and customization capabilities, in a cost-effective and time-efficient manner. Also, digital printing is a much eco-friendlier alternative to traditional analog processes, as by excising the need to wash screens for color changes, digital processes significantly reduce both discharge of toxic chemicals and industrial water consumption.
Digital textile printing enables a larger variety of artwork to be imprinted, without limitations on number of colors per design and with high-resolution imaging. Kornit's technology also permits business models based on web-to-print, on-demand, and mass customization concepts, helping clients to efficiently meet demand, innovate, and decrease risk of excess inventory.
In terms of recent news for the company, KRNT hired a new CEO who took over on August 1. His name is Ronen Samuel, and he is an industry veteran from HP Indigo. In early August, KRNT posted solid Q2 results, which included a robust top-line growth rate of 25.5%, with revenue and operating margin coming in at above the high end of guidance. The Q2 results were driven by strong demand for its technology.
Of note, the company sounds enthusiastic about the recent introduction of its Avalanche HD 6 System. It provides significant reduction in cost per print, improved hand-feel, and improved print quality. KRNT says that the continued retail shift towards shorter run production and print on-demand and the benefits offered by the HD6 are driving migration of more screen printers to Kornit's digital platform, creating excellent business momentum for the company. Kornit sees itself as well-positioned to capture increased growth opportunities as its addressable market expands.
We always like a story in which a company is a play on an emerging trend in an industry. Digital printing is still such a small segment of the industry, but as technology develops and market priorities shift, it seems that the apparel/fabric industry is going to drive the expansion of digital printing more and more. KRNT is an attractive play on that trend. This digital process is more efficient for manufacturers, and as consumers shop online more, more brands will endeavor to expand their digital presence. On a final note, the stock jumped in late August, but we are not seeing a specific catalyst for that action. Regardless, the stock’s chart looks positive.
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