Nextech AR Solutions Corp has earned a repeat ‘Buy’ rating and an unchanged price target of US$2.50 from HC Wainwright & Co analysts after it announced a new modelling contract with a top 10 eCommerce retailer.
The analysts’ price target represents about a 300% upside on Nextech’s stock, with shares currently trading at about US$0.62.
In a note to clients, analysts wrote that the modelling contract, which was announced on February 9, increases their confidence in the company’s ability to meet, or exceed, lofty expectations.
READ: Nextech AR Solutions chosen as supplier for top 10 US eCommerce retailer
They highlighted that the contract calls for more than 10,000 3D models to be delivered in 2023 and has significant expansion opportunities that could be realized beginning in H2/23.
“We believe this contract could be worth more than $1M of revenue in 2023 and increase in subsequent years,” they wrote.
"In addition, the company expects to announce additional new enterprise contracts from major retailers during 1Q23, suggesting positive business momentum should continue near term.”
The analysts added that, with this new contract and previously announced work for Amazon.com Inc (NASDAQ:AMZN), they believe Nextech’s 3D modelling products have reached a level of adoption and credibility that should make additional sales easier, and shorten the sales cycle.
“As Nextech exits its legacy eCommerce business, we believe investors should get a better look at the high margin 3D modelling business on a standalone basis, despite lower total revenue in the near term,” they wrote.
“At 60%-plus margins, we believe revenue growth and recent operating expense reductions should result in significant operating leverage and potentially positive adjusted EBITDA and cash flow as early as H2/23.”
Positive news flow to serve as near-term catalyst
HC Wainwright’s analysts did not make any adjustments to their forward estimates. They explained that their US$2.50 price target reflects the current $12 million value on Nextech’s ownership position in publicly traded ARway (CSE:ARWY) Corp, as well as an approximate 20x EV/revenue multiple on their 2023 revenue estimates of $15 million.
“As the company begins to demonstrate its ability to drive meaningful revenue growth, improve gross margin expansion, and achieve consistent profitability we believe new investors should be attracted to NEXCF shares,” they wrote.
“In addition, we suspect positive news flow, including new contract and partnership announcements to serve as a near-term catalyst, ahead of the 2023 acceleration in higher margin technology revenue.”
The analysts concluded: “We recommend investors take advantage of this period of business transition to accumulate NEXCF shares at what we view as a meaningful discount ahead of improving operating results.”
Contact the author at emily.jarvie@proactiveinvestors.com
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