Wall Street is looking for triple-digit growth from this speculative play.
LightPath Technologies (LPTH)
From The Inger Letter
Virtualization and visualization describe forward-looking advanced new elements of technology having undergone years of development, mostly in optical & infrared sensor areas. Only recently do these combine powerful microprocessors to progress that goes beyond virtual reality and gaming; or satellite and other lens-based solutions.
LightPath Technologies (LPTH) seems in turnaround mode; having just completed an acquisition which further should transform an overlooked (gem?) global competitor in optical and infrared, plus thermal imaging. Still micro-cap, but we think not for long (if it moves above 5, you might attract institutional interest).
Notably both Orlando-based LightPath and its newly-acquired wholly-owned ISP Optics (New York and Latvia) ISP Optics, produce all military and US defense items in the USA. Medical, telecommunications, UAV (drone) non-military opticals are produced in the USA, Latvia or two wholly-owned factories in China. The company is working with nano-material innovations too.
This combines LPTH experience in molding precision optics with graphene coating advances (for visible as well as infrared lenses)—shown to improve space, military and automotive functionality and at lower end-user costs.
The company basically doubled its revenue with small dilution, and the shares are trading not far from 52-week lows. It’s viewed as an undervalued play already turned around after flat-lining for years.
The ISP Optics acquisition should be accretive and transformational with respect to global market penetration and synergies. We assess an upward trend in revenues, reflecting LightPath’s growing market share in optics. Attractive EBITDA growth derives from scaling operations to meet rising demand for products. SG&A expenses grow at a slower rate than revenue, which shows leverage in LightPath’s business and how EBITDA margins will ideally improve as the company continues to scale synergies with the new ISP Optics acquisition.
LPTH shares remain narrowly-traded without huge float. LPTH already was in evident turnaround, perhaps not reflected by share price, and now has a transformative combination which should position LightPath (with ISP Optics) to grow with greater scale and scope, offering comprehensive platforms of visible and infrared photonics.
Believing LightPath has already turned-around, but remains unknown by a majority of analysts and funds, we suspect it not only benefits in optical and sensor growth (as supplier to many) but is performing above average in its ‘space’. It’s clearly a speculation, but we’re at improved performance and prospects without recent price gain, yet.
It’s hard to say upside potential, but extrapolating reasonable growth; a double from the 1.50 area shouldn’t be difficult later this year ‘if’ LPTH and market conditions allow evolving growth and optimism. Thus, the intent is to hold it, rather than trade it. Now if by chance it should double or triple too quickly, or more (presuming it goes up), there may be temptation to sell part to recapture initial ‘bets’—the rest retained for possible extended gains.
Footnote: Institutional ownership at roughly 8% is common for micro-cap stocks, especially under 1.50 (considered by many as penny stocks though this is a NASDAQ-listed stock in a turnaround and growth phase, as noted). Aside retail investors and hedge funds, institutions typically won’t open a position until a stock is over $5 / share or even must close into weakness. We see 2017 as a year to absorb or integrate ISP as part of greater plans. (Vanguard Group and Blackrock are the largest institutional holders.)
The shares appear to bump along a technical base, with little awareness of the growth in capabilities or revenue. So, we’ll place a ‘Vegas bet’, with a buy-zone of 1.40-1.70 estimated. Be aware all micro and small caps tend to have low liquidity or wide spreads. Average daily trading volume has been about 120,000; so, care should be used in a purchase or sale.
Gene Inger, The Inger Letter, www.ingerletter.com, January 9, 2017