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On September 10, Frequency Electronics, Inc. (NASDAQ:FEIM) reported strong financial results for the first quarter of fiscal 2027. Revenue reached an all-time record of $23.5 million as it increased 70% year-over-year and 52% sequentially.
Management had previously said during its fourth-quarter fiscal 2026 earnings call in July that it expected to return to growth in fiscal 2027. The latest results support that outlook strongly. Frequency Electronics, Inc. (NASDAQ:FEIM) said the strong first-quarter performance has raised its confidence in meeting or beating its previously stated target of at least $150 million in annual revenue by fiscal 2029, which ends April 30, 2029.
Frequency Electronics, Inc. (NASDAQ:FEIM) also ended the quarter with a record funded backlog of $129 million, up 82% year-over-year and 16% sequentially. Future growth is supported by this funded backlog, a growing order book, and the significantly larger end markets that the company is now selling into.
The revenue growth also helped the company deliver a significant improvement in profitability. Gross margin expanded to approximately 46% and operating margin surpassed 22%. Frequency Electronics, Inc. (NASDAQ:FEIM) said that it was also cash-generative and expects to remain cash-generative on an annual basis going forward.
The results came in above expectations, sending the stock more than 24% higher in after-hours trading following the announcement.
Management said that internal research and development expenses are expected to remain below 10% of revenue. However, fluctuations could occur and affect profitability. At the same time, production ramp-up remains a challenge as the company works to meet customer schedules. Management suggested that it may need to carefully allocate orders and potentially turn down some business.
Additionally, the company has seen limited success with new defense technology companies so far, with most of its traction coming from the space market rather than defense.
The company also currently does not pay a cash dividend, which could make Frequency Electronics, Inc. (NASDAQ:FEIM) less attractive to some institutional investors.
Hedge fund interest in the stock has increased recently. According to Insider Monkey's database, 16 hedge funds held positions in Frequency Electronics, Inc. (NASDAQ:FEIM) in the second quarter of 2026, up from 13 in the first quarter.
However, short interest remains relatively high. As of August 31, short interest stood at 11.39% of the company's float, showing that a notable portion of investors are betting against the stock.
Frequency Electronics, Inc.'s (NASDAQ:FEIM) record revenue, impressive backlog, and improved margins point to a meaningful improvement in its financial performance. However, production constraints, limited traction with new defense technology companies, and relatively high short interest remain factors investors should keep in mind as the company works to sustain its growth.
While we acknowledge the potential of FEIM as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
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