Zacks Small Cap Research has issued a report on NexTech AR Solutions Inc a day or so after the metaverse company, which develops and operates augmented reality platforms, reported record revenue for 2021.
Zacks' analysts noted that 2022 is expected to be a transition year for NexTech AR. After taking advantage the market for virtual events in 2021, the company is transitioning to be a 3D model factory with a unique recurring revenue model, they said.
The analysts added: "We expect sales to transition to being a supplier of 3D models and eCommerce is finally embracing them after years of ignoring 3D. In 2022 NexTech will integrate with more platforms and make access to its products easier with a single interface."
The analysts noted that NexTech reported revenues for 2021 of $25.9 million, up 47%., with its eCommerce business growing 38%, its Technology Services (mostly virtual events) ahead 55% and, most importantly, its Renewable Software License revenues up 316% to $1.4 million.
They said: "Going forward this is the category where AR models are booked and we expect the most growth in 2022. Here also are where the gross margins are the highest (ranging from 50-70%.)"
"The company has taken recent steps to considerably lower its cash breakeven point and expenses could be as much as $1 million lower already in Q1 as it cut staff and moved to more variable costs in Q4 2021. With about $20 million in cash on hand, NexTech has a stash as it moves to reach its goal of less than a million a month in cash burn," the analysts added.
They noted that the company is continuing to pursue an uplisting to NASDAQ and said its new auditors, Marcum LLP ought to help achieve that goal.
Higher valuation deserved
"With a nascent market projected to increase by 289% per year over the next five years, NexTech as a unique public pure-play that could deserve a higher valuation. It currently trades at an enterprise value of approximately US$87 million or 2.6xs projected 2023 sales of US$33.6 million," the Zacks analysts said
Looking at valuation, the analysts pointed out that since their last report on the company, the valuation of NexTech comparatives have again come down, as have most of the tech names, particularly those that benefited from work at home.
They said: "We have taken a group of companies involved in augmented reality as well as companies that provide conferencing. At current valuations we get an average of 4.7 times EV/2023 Sales. So, using US$33.6 million for 2023 estimated sales, and a 4.9 multiple, NexTech could be worth an enterprise value as high as US$165 million or a market value of $185 million."
Dividing by the current shares of approximately 99.6 million, that would be a market value of US$1.85 per NexTech share, the analysts concluded, adding: "Even if we were to split out the eCommerce revenues and give it a separate lower multiple, we still get a blended multiple of 3.5 times or a stock price of US$1.40 by next year."
Contact the author at jon.hopkins@proactiveinvestors.com