eMagin Corporation: Chart Suggests a Possible Spike

Attention Contrarian Investors: EMAN Stock Down by 50%

While screening for technology stocks that are off by 50% from their highs, eMagin Corporation (NYSE:EMAN) surfaced. The developer of microdisplays for small electronic devices could be interesting for contrarian investors who are looking for a high risk/reward opportunity.

Microdisplays are found in billions of everyday devices that demand high-quality imaging and low power consumption. It’s a massive market that’s estimated to grow to $3.6 billion by 2026. (Source: “Microdisplay Market With COVID-19 Impact Analysis by Product,” MarketsandMarkets Research Private Ltd, last accessed November 18, 2021.)

Considering that eMagin Corporation had revenues of just $29.4 million in 2020, the upside prospects are huge.

Of course, the company needs to deliver. With eMagin stock down by 52% from its 52-week high of $5.42 in March, Mr. Market appears to be betting against the company.

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There’s no assurance that eMagin Corporation can take advantage of the tailwinds in the microdisplay market, but if the company can drive up its revenues, I wouldn’t be surprised to see a corresponding rally in EMAN stock.

eMagin Stock Has Tons of Room to Rally

eMagin Corporation’s stock chart shows a horrible sell-off that drove EMAN stock down to $0.25 in March 2020.

But like the broader market, the rally after that was impressive, with eMagin stock surging to $5.42 a year later. Unfortunately, the stock failed to hold its trendline support and subsequently broke below its 50-day and 200-day moving averages, highlighted by a death cross pattern.

EMAN stock has recovered its 50-day moving average but is eyeing key technical support around $2.00 to $2.25. The stock could break lower, but if it holds, the upside is potentially huge.

Chart courtesy of StockCharts.com

eMagin Corporation’s Fundamentals Need to Improve

eMagin Corporation has plenty of work ahead of it to convince the market that it’s wrong about eMagin stock.

The company’s revenues have increased in each of the last four years, but the scale continues to be small.

For the current year, eMagin is expected to report a 3.8% decline in its revenues, prior to increasing in 2022 by 19.1% to $33.7 million. (Source: “eMagin Corporation (EMAN),” Yahoo! Finance, last accessed November 18, 2021.)

Fiscal YearRevenue (Millions)Growth
2016$21.4N/A
2017$22.03.0%
2018$26.319.1%
2019$26.71.9%
2020$29.410.1%

(Source: “eMagin Corp.” MarketWatch, last accessed November 18, 2021.)

eMagin Corporation needs to drive efficiencies and streamline its costs. Its earnings before interest, taxes, depreciation, and amortization (EBITDA) have been negative, but they’ve shown some improvement.

Fiscal YearEBITDA (Millions)Growth
2016-$6.7N/A
2017-$6.9-3.0%
2018-$9.7-10.7%
2019-$3.069.1%
2020-$4.1-37.5%

(Source: MarketWatch, op. cit.)

The company’s generally accepted accounting principles (GAAP) diluted earnings per share (EPS) have also been negative but have shown some improvement.

Analysts estimate that eMagin Corporation’s GAAP loss will narrow to $0.15 per diluted share in 2021. A breakeven second quarter was encouraging. (SourceYahoo! Finance, op. cit.)

Fiscal YearGAAP Diluted EPSGrowth
2016-$0.27N/A
2017-$0.2314.8%
2018-$0.216.6%
2019-$0.0958.4%
2020-$0.19-112.1%

(Source: MarketWatch, op. cit.)

The company’s free cash flow has been negative, and I expect it to remain negative for the next few years as eMagin focuses on growing its revenues.

Fiscal YearFree Cash Flow (Millions)Growth
2016-$10.1N/A
2017-$9.55.5%
2018-$8.78.7%
2019-$5.734.4%
2020-$6.7-17.2%

(Source: MarketWatch, op. cit.)

Analyst Take

The road for eMagin Corporation will not be easy. That’s why EMAN stock is down by as much as it is.

But for the aggressive trader who’s willing to take on some risk, the payoff from eMagin stock could be enormous.