HC Wainwright & Co has initiated coverage on metaverse firm NexTech AR Solutions Corp, citing its “attractive metaverse play” as a catalyst for its Buy rating.
NexTech is positioning itself to become a leading provider of 3D models and augmented reality solutions to the e-commerce industry, analysts wrote in a note, with a clearly laid-out path to profitability.
HC Wainwright has a C$2.50 price target on the technology company’s stock, which is currently trading around the $0.85 mark in Toronto.
READ: Nextech AR Solutions Corp reports big rise in 2021 revenue as it grows repeat customers
“The shift from legacy retail and virtual event hosting, which represents almost 80.0% of revenue today, to software and technology solutions should drive meaningful revenue growth, margin expansion, and a re-rating of shares, consistent with other small capitalization software companies,” analysts wrote.
“As scale begins to improve in 2023 and beyond, we expect revenue growth and margin expansion to drive significant operating leverage and a path to quarterly profitability as early as 2023.”
HC Wainwright said it is keeping its eye on potential catalysts to move the stock, like new e-commerce partnerships and a potential Nasdaq listing in 2022.
'Meaningful revenue growth'
The analyst firm said it expects “meaningful revenue growth” of 17.6% in 2022 and 31.6% in 2023, and higher quality revenue as the business transitions from selling retail products to providing higher margin software and managed services to the e-commerce industry.
As well, HC Wainwright said that cost reductions are driving operating leverage and pointing towards a “clear path” to profitability.
“In recent months, the company has begun an aggressive reduction in operating costs as the business transitions away from retail sales and virtual event hosting to its 3D modeling and AR solutions,” analysts wrote.
“As a result, the company believes it is on a path to achieve operating cost levels of approximately C$1 million per month, or an annual run-rate of C$12 million. This compares to C$37.9 million of operating costs expected in 2021.”
Investors should begin to see the impact of reduced costs when NexTech’s 4Q 2021 results are released later this month, the firm added.
Near term catalysts look positive
Wainwright is valuing NexTech shares at a 7x EV/revenue multiple of its 2023 revenue estimate of C$40 million, which represents nearly a 200% upside. That multiple is at the low end of NexTech’s peer group, analysts noted.
“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,” analysts wrote.
“In addition, we suspect positive news flow, including new contract and partnership announcements to serve as a near term catalyst, ahead of the (second half of 2022) acceleration in higher margin technology revenue.”
Contact Angela at angela@proactiveinvestors.com
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