Akoustis Technologies Inc: Why This 5G Play Could Be a Hidden Gem

AKTS stockAkoustis Technologies Inc Focusing on 5G to Power Growth

The battle for fifth-generation (5G) wireless supremacy will accelerate over the next few years as the world attempts to catch up to China.

5G  is critical, as the super-fast bandwidth technology will power the technologies of the future, from autonomous vehicles to communications and industrial applications.

Just as importantly, the race to 5G will provide a catalyst for many technology hardware and software companies.

An intriguing 5G play with a bright future is Akoustis Technologies Inc (NASDAQ:AKTS), an early-stage communications technologies company with tremendous upside.

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Akoustis Technologies was formed only a few years ago, in 2014. The company focuses on a patented “XBAW” acoustic wave RF filter technology that targets higher bandwidth applications such as 5G.

Akoustis is small, with a mere market valuation of $315.0 million, but the ramp-up in 5G is expected to power up AKTS stock.

Yet, while AKTS stock has rallied over 100% from its March low of $3.76, Akoustis Technologies is up only around 2.9% this year.

The Akoustis Technologies chart shows a sharp rally from the March low to its pre-COVID level at just under $9.50. Since failing to break above, AKTS stock has been drifting in a tight sideways channel at between $7.00 and $9.50 on neutral relative strength.

A break below channel support at $7.00 could see Akoustis Technologies stock cover its previous gap at around $6.00. The key upside target is $9.50.

Chart courtesy of StockCharts.com

The relative underperformance of AKTS stock compared to the Nasdaq and S&P 500 provides traders with an aggressive risk/reward.

Accelerating Revenues and Strong Tailwinds to Drive AKTS Stock

A look at the short revenue history shows the current small scale, but the expected growth is expected to accelerate over the next two fiscal years.

Fiscal Year Revenue (Millions) Growth
2017 $480,000 N/A
2018 $1.2 148.30%
2019 $1.4 19.50%
2020 $1.8 24.10%

(Source: “Akoustis Technologies, Inc,” MarketWatch, last accessed October 1, 2020.)

Akoustis Technologies is estimated to ramp up revenues by 443.6% to $9.7 million in fiscal 2021 (ending in June), 394.8% to $48.1 million, and as high as $55.0 million in fiscal 2022. (Source: “Akoustis Technologies Inc (AKTS),” Yahoo! Finance, last accessed October 1, 2020.)

The estimates give AKTS stock a valuation of roughly 5.72 times forward sales, which is reasonable for a small growth stock.

At the same time, Akoustis Technologies Inc is likely a few years away from being profitable and generating positive earnings before interest, taxes, depreciation, and amortization (EBITDA) and free cash flow (FCF).

A positive is that AKTS is expected to narrow its loss based on generally accepted accounting principles (GAAP).

Fiscal Year GAAP Diluted EPS Growth
2017 -$0.58 -81.30%
2018 -$1.04 -79.30%
2019 -$1.06 -2.20%
2020 -$1.07 -0.90%

(Source: MarketWatch, op. cit.)

For fiscal 2021, Akoustis Technologies could cut its GAAP loss to $0.85 and further narrow this to $0.38, and then as low as $0.05 per diluted share in fiscal 2022. (Source: Yahoo! Finance, op. cit.)

In the meantime, as AKTS works on growing its revenues and controlling costs, the balance sheet will not pose any financial issues for a few years. Akoustis Technologies has strong working capital, debt of $23.92 million, and a healthy cash balance of $44.31 million. (Source: Yahoo! Finance, op. cit.)

Analyst Take

My bullish thesis for AKTS stock is based on strong tailwinds in the 5G segment.

We are already seeing more institutions buying Akoustis Technologies stock. Currently, about 128 institutions own 44.48% of the outstanding AKTS shares. The top holders include Blackrock, Inc. (NYSE:BLK), with a 5.4% stake, and The Vanguard Group, with a 4.2% interest. (Source: Yahoo! Finance, op. cit.)

Buying Akoustis Technologies stock at below $10.00 may soon be a thing of the past. The upside potential could eventually see a doubling in AKTS stock.