Daktronics: A High-Conviction Buy Amid Robust Backlog and Margin Expansion

In an era where demand for immersive digital experiences is surging, Daktronics (DAKT) emerges as a compelling investment opportunity. The company's strategic positioning in high-growth sectors, coupled with a resilient margin profile and a robust order backlog, positions it to capitalize on long-term industry tailwinds. For investors seeking exposure to a business with clear operational and strategic momentum, Daktronics offers a rare combination of near-term visibility and durable competitive advantages.

Robust Backlog and Order Growth: A Foundation for Future Earnings

Daktronics' order backlog remains a critical catalyst for its near-term performance. As of January 25, 2025, the company reported a product order backlog of $273.2 million, a modest increase from $236.0 million in Q2 2025 and a testament to sustained demand in its core markets. More notably, by the end of Q1 2026, the backlog had expanded to $360 million, reflecting strong traction in segments such as live events, high school parks and recreation, and international markets. This growth underscores the company's ability to secure long-lead-time projects, which are critical for stabilizing revenue streams in a cyclical industry.

The backlog's composition further highlights Daktronics' strategic focus. Indoor LED displays and rental/staging solutions-segments with higher gross margins and recurring revenue potential-account for a growing share of its order mix. This shift aligns with broader industry trends, as stadiums, entertainment venues, and corporate clients increasingly prioritize high-resolution, interactive displays to enhance audience engagement.

Strategic Growth Initiatives: Fueling 7–10% Annual Sales Expansion

Daktronics has laid out an ambitious growth roadmap, targeting 7–10% annual sales growth through fiscal 2028, alongside operating margins of 10–12% and a return on invested capital (ROIC) of 17–20%. These goals are underpinned by three pillars:
1. Indoor Market Expansion: The company is doubling down on indoor LED displays, a segment where it holds a leadership position due to its expertise in large-scale installations and proprietary software solutions.
2. Service Innovation: Enhanced customer experiences through value-added services, such as content creation and system integration, are expected to drive incremental revenue and improve customer retention.
3. Global Diversification: Daktronics is leveraging its international footprint to tap into emerging markets, particularly in Asia-Pacific and the Middle East, where demand for sports and entertainment infrastructure is accelerating.

These initiatives are not merely aspirational. The company's Q1 2026 results, which included operating income of $23.3 million despite rising tariff costs, demonstrate the early traction of its business transformation efforts. By prioritizing value-based pricing and operational efficiencies, Daktronics is mitigating input cost pressures while preserving profitability-a critical differentiator in a sector prone to margin volatility.

Margin Resilience: Navigating Challenges with Operational Discipline

While Daktronics' Q3 2025 operating margin dipped to a negative 2.4% due to transformation-related expenses, its adjusted operating margin remained positive at 1%. This discrepancy highlights the company's proactive approach to managing non-recurring costs. Management has been transparent about the short-term drag from corporate governance and consulting initiatives, which are expected to yield long-term benefits through streamlined operations and improved scalability.

Crucially, Daktronics has preserved its gross profit margin of 24.6%-a figure that outperforms many peers in the LED display sector. This resilience stems from its vertically integrated manufacturing model, which reduces reliance on third-party suppliers, and its focus on high-margin, custom-engineered solutions. As supply chain dynamics normalize, the company is well-positioned to recapture lost margin, particularly as tariffs and logistics costs stabilize.

### Competitive Advantages: Technology and Market Leadership
Daktronics' dominance in the LED display market is underpinned by its technological innovation and brand strength. The company remains a leader in stadium and live-event displays, with iconic installations at venues such as the Super Bowl and the Olympics. While competitors like Leyard and Samsung have made inroads in consumer electronics and retail, Daktronics' expertise in large-scale, mission-critical systems gives it a unique edge in the $1.2 billion LED stadium screens market.

According to market analysis, the top three brand owners-Liantronics, Leyard, and Daktronics-collectively hold 26% of the global LED display market share. Though exact figures for Daktronics' individual share are not disclosed, its reputation for reliability and innovation ensures it remains a preferred partner for high-profile projects. Additionally, the company's recent credit rating improvement to B4 in the second half of 2025 signals growing confidence in its financial stability.

Industry Tailwinds: A $100 Billion Opportunity

The LED display market is projected to grow at a compound annual rate of 8.5% through 2032, driven by demand for immersive experiences in sports, entertainment, and corporate settings. Daktronics is uniquely positioned to benefit from this growth, as its product portfolio aligns with the industry's shift toward smart, networked systems and AI-driven content management. With its backlog already exceeding $360 million and a clear path to margin expansion, the company is poised to outperform broader market trends.

Conclusion: A High-Conviction Buy for the Long Term

Daktronics' combination of a robust backlog, disciplined margin management, and strategic growth initiatives makes it a standout in the industrial technology sector. While short-term challenges such as transformation costs and input inflation persist, the company's long-term fundamentals are undeniably strong. For investors with a multi-year horizon, Daktronics offers a compelling opportunity to participate in the next phase of the digital transformation of live experiences.