Justin Sullivan
introduce
We wrote about the company Vuzix (NASDAQ: VUZI) Back in April of this year, we said the market was demanding higher revenue growth rates from the company to boost the stock price over time.We rate “Hold” The call on the stock was correct at the time, as the stock has been more or less flat over the past 20 weeks or so. Still, while revenue growth has been accelerating (28% in the trailing twelve months versus the company’s 5-year average of 23%), demand remains higher, largely to prove the The stock’s very high valuation is justified due to the continued negative earnings print.
When we dug into Vuzix’s recent second-quarter numbers, we found that sales were up an impressive 56%, driven by strong sales of the M400 product.GAAP earnings However, revenue was -$9 million, up just +$1 million from the same period 12 months ago. Profitability in the second quarter was also unimpressive from a cash flow perspective, with operating cash flow of -$7.9 million, the worst quarter since the fourth quarter of fiscal 2021.
The good news is that the company has improved over the past five months or so, and that’s its valuation, specifically the company’s forward sales multiple. Back in April, annual sales for fiscal 2023 were widely expected to be just over $17.6 million, while the top forecast now stands at $18.61 million. As a result, Vuzix’s fiscal 2023 sales multiple now stands at 12.56, with top-line growth of over 40%. The expected growth in fiscal 2024 implies a fiscal 2024 price-to-sales ratio of 8.66. What would people think of the momentum?
Suffice it to say, when one combines declining sales multiples with the massive potential of Vuzix’s technology in areas like artificial intelligence, waveguides, and the smart glasses industry as a whole, one might be tempted to start going long on the stock. However, at this juncture, technical analysis becomes crucial as share price movements can give us an idea of when to make potential investments. We’ll start with Vuzix’s middle chart and see how the market (investors) views the recent strong revenue growth.
Medium term 5 year chart
There are several trends on Vuzix’s medium-term 5-year chart that are concerning, to say the least. Given that we’ve seen lower lows for the better part of 30 months, trend following indicators often become the most reliable tools when trying to determine future stock price direction. The reason is that established trend stocks must maintain the main trend because they are based on human emotions or psychology, which basically do not change. So, with Vuzix’s 10-week moving average ($4.48) getting dangerously close to falling below the corresponding 40-week moving average ($4.43), the risk here is that continued downward pressure will return, as it did in mid-2021 Like 2022. We see below.
Another issue we see on Vuzik’s middle chart is that the stock is trading at support, which it has held for almost 9 months now. If we break out of this support (a rise on a sell-off day would be a clear sign), then this support will act as overhead resistance for the stock. Therefore, the stock price must remain above support to ensure that short interest (20%+) does not get higher over time.
VUZI Intermediate 5-Year Technical Analysis (Stockcharts.com)
12 Month Daily Chart
On the daily chart, as shown below, Vuzix is currently trading at around $3.60 per share, meaning the lows from April this year have held steady (support) so far. However, when we look at the company’s sales trends, we see a different story. As shown below, Vuzix’s OBV (on-balance volume) is now much lower than it was in April. The impact of the difference between Vuzix’s price and volume is as follows.
As technicians, we believe that volume trends precede stock price movements, so the “likelihood” suggests that VUZI’s stock price will continue to move lower in the near term until the volume trends become more bullish.
VUZI 12 Month Technical Indicators (Stockcharts.com)
in conclusion
So, all in all, despite VUZI’s 56% revenue growth in the second quarter, the market remains unmoved as all we’ve seen since the announcement in early August is a continued downward pattern. The stock’s trading next week will tell us a lot. We look forward to continuing the coverage.
