Socket Mobile, Inc. (SCKT) produces data capture products that are incorporated into mobile applications for use in business mobility markets in the United States and internationally. Its solid deployment of business data applications, particularly in the retail sector, and strong consumer demand for its application development tools, have enabled SCKT to generate triple-digit revenue growth in the second quarter of 2021. 

In addition, its robust financial performance in the last reported quarter, despite supply chain constraints and inflationary pressure, has helped its stock gain 19.3% over the past month and 209.2% year-to-date.

SCKT’s recent announcement that its data capture hardware will support applications facilitating EU Digital COVID Certificates regarding COVID-19 vaccinations should be a boon for the stock in the near term.

So, here is what we think could shape SCKT’s performance in the near term:

Positive Developments

Last month, SCKT announced that its family of barcode scanners offers built-in compatibility and support for applications designed to facilitate EU Digital COVID Certificates required for traveling within EU borders. The company’s Capture SDK and data capture hardware help support secure applications for EU member states and citizens. This development should enable SCKT to offer additional benefits of future-proofing apps to developers.

In April, the company launched its  new v1.50 firmware for the D600 NFC reader to support the transition from QR codes to NFC format. The firmware supports all NFC tag types and message formats and can read NFC messages when connected to an iPad, tablet, or PC. Thus, the D600 ensures broad support for all customer devices and helps the company offer easier virtual card interactions.

Impressive Financials

SCKT’s revenue increased 119% year-over-year to $6.0 million in the second quarter, ended June 30, 2021, due primarily to increased deployments of business applications in the retail industry. Its gross margin increased to 55% versus 50% for the second quarter of 2020, while its operating income came in at $814,000 compared to an $810,000 operating loss in the prior-year quarter. The company’s net income totaled  $2.6 million for this quarter, compared to a $768,000 net loss in the prior-year period. Also, SCKT’s EPS came in at $0.27, versus a $0.13 loss per share  in the second quarter of 2020.

The company’s 54.2% trailing-12-month gross profit margin is 11.3% higher than the 48.7% industry average. Its 10.4% EBIT margin is 30.3% higher than the 8% industry average. Moreover, SCKT’s respective 7.2% and 1% ROTC and asset turnover ratios compare favorably with their respective industry averages.

Reasonable Valuation

SCKT’s 2.93x trailing-12-month EV/Sales ratio  is 35.4% lower than the 4.54x industry average. And in terms of trailing-12-month Price/Sales, the company is currently trading at 2.75x, which is 36.3% lower than the 4.32x industry average. Furthermore, the stock’s 3.43 trailing-12-month Price/Book ratio compares favorably with the 4.96 industry average.

Consensus Price Target Indicates Potential Upside

Currently trading at $7.36, the $7.75 consensus price target  indicates a 5.3% potential upside.

POWR Ratings Reflect Promising Outlook

SCKT has an overall B rating, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. SCKT has an A  grade for Sentiment. This is consistent with analysts’ expectation that its EPS will increase 21.4% year-over-year to $0.17 in 2022.

Also, in terms of Momentum grade, SCKT has a B. The stock’s price returns year-to-date are in sync with this grade.

Click here to see the additional POWR Ratings for SCKT (Growth, Quality, Stability, and Value).

The stock is ranked #19 of 45 stocks in the B-rated Technology – Hardware industry.

If you’re looking for other top-rated stocks in the same industry with an Overall POWR Rating of A or B, you can access them here.

Bottom Line

SCKT’s robust portfolio of innovative products to better serve the developer community and increased investments in new products position it uniquely to grab new market opportunities. Furthermore, its strong cash balance and margin expansion, and relative undervaluation should help it stand out in its industry. Thus, we think the stock is a solid bet now.

SCKT shares were trading at $7.10 per share on Tuesday morning, down $0.26 (-3.53%). Year-to-date, SCKT has gained 198.32%, versus a 18.29% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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