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.
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|
(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|
(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.)
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.