We wrote about Vuzix Corporation (VUZI) back in October of last year when we stated that augmented reality in healthcare had the potential to drive shares forward. After going through the company’s latest earnings report, which we will delve into, this still seems to be the case although management expects to see continuing breakthroughs regarding sales in other areas. Being chartists though, we believe that all known fundamentals affecting Vuzix have already been reflected on the technical chart. Suffice it to say, as we can see below, shares are down approximately 25% since we penned that piece back in October. If the decline continues, we are hoping the 200-week moving average of just under $7 per share will provide the necessary support to finally call a halt to the selling. Bulls will be encouraged that we saw some insider buying over the past couple of months at prices well above what we have at present ($7.97). In saying this, the market remains unconvinced, so patience is a prerequisite here for the long-haul.
We state this because company sales this year are expected to come in at just over $13.8 million. Sales last year came in at $11.58 million, which means the expected top-line growth rate this year is just under 20%. The top-line growth expectation for fiscal 2021 for example is well below the company’s sales of its Smart Glasses and here is where the discrepancy lies. Over the first three quarters of this year as we can see below, Smart Glasses revenues have grown by over 50% over the same period of 12-months prior and this growth-rate is expected to continue in the fourth quarter.
Suffice it to say, the growth in revenues in this segment of Vuzix’s business is not making itself known in the financials yet. There is definitely a sense of momentum from the press-releases management has been turning out. Just over the past few weeks, we have seen promising news regarding new shipments of glasses to a mobile computer maker, a Fortune 50 online retailer and even a facial recognition company in Japan. Looking at these announcements straight off the bat may lead investors to believe that the potential is great here given the diversity of the industries in question. What the market needs to see in earnest is the actual numbers behind these announcements. Like, how many glasses were ordered from each company? Were the orders significant? Suffice it to say, given how revenue growth most likely will not top 20% this year for the company, the likelihood is that these orders did not involve significant quantities and this is why the share-price has not been popping on the news.
Furthermore the $25+ million of top-line sales expected in fiscal 2022 (almost a 100% expected growth rate) still isn’t scratching the surface with respect to sound bottom-line profitability. Net earnings are only expected to improve from -$0.51 per share this year to -$0.48 per share next year. Suffice it to say, the market still is not convinced that profitability can increase meaningfully, not just from hardware but from planned endeavors such as Smart Glasses SaaS software as well as OEM. Obviously, the recurring aspects of the software income stream looks really attractive here especially if enough units can get out there in the marketplace.
To sum up, Vuzix still has it all to do despite the fact that sales are expected to almost double next year. Whether the company gets bought out or whether some real value can be added through the company’s next generation of glasses remains to be seen. What we do know is this: the market needs to see concrete progression in the financials. EBIT, for example, is at its lowest level for many years, which means the road to sound profitability will continue to be a long one. We look forward to continued coverage.