Is Penny Stock NXT-ID a Buy?

A development-stage technology company, Nxt-ID, Inc. (NXTD), is engaged in developing and marketing solutions for healthcare applications, payment, and the Internet of Things (IoT). The company’s expansion into new customer segments and the extension of its products to federal and state agencies amid the growing need for telehealth solutions have helped it witness revenue growth of 14% year-over-year in the second quarter ended June 30, 2021. 

However, the penny stock has declined 75% year-to-date and 38% over the past month. Furthermore, the stock is currently trading lower than its 50-day and 200-day moving averages of $0.62 and $1.06, respectively, which indicates a downtrend.

Investor anxiety surrounding the vote on a reverse stock split of its common stock, scheduled to be held on October 15, 2021, to avoid Nasdaq delisting, could cause its shares to plummet further. In addition, NXTD’s poor profitability and financial instability could make matters worse.

Here’s what could influence NXTD’s performance in the near term:

Selling Shares

Last month, NXTD announced the pricing of an underwritten public offering of 27.89 million shares of its common stock, including warrants to purchase up to 27.89 million shares of the common stock and 3.64 million shares to be issued upon the exercise of the underwriters’ over-allotment option. The technology products and services provider expects gross proceeds of approximately $12.5 million from the offering. It intends to use the net proceeds from the offering to fund working capital, new product development, and liability reduction.

Reverse Stock Split Disapproval Could Lead to Delisting

On September 20, the company filed a proxy statement with the Securities and Exchange Commission to hold a shareholders meeting on October 15 for a vote on a reverse split of its common stock and a reverse split of its Series C preferred stock, primarily to allow NXTD to regain compliance with the NASDAQ Capital Market’s minimum bid price requirement and to satisfy undertakings to certain warrant-holders. However, if the company’s shareholders don’t approve the reverse stock split, NXTD’s common stock will be subject to delisting, thereby negatively affecting its market valuation and liquidity.

Bleak Financials

NXTD’s total operating loss rose 104.9% year-over-year to $211,672 in the second quarter ended June 30, 2021. It reported a net loss of $555,748 and a net loss per share of $0.02. The company’s total operating expenses grew 6% from the prior-year quarter to $2.03 million. For the six months ended June 30, 2021, NXTD’s net decrease in cash and restricted cash stood at $1.14 million. Its revenue declined 16.2% year-over-year to $5.22 million during this period.

The company’s revenue has declined at a CAGR of 14.6% over the past three years. In addition, its total assets have decreased at an annualized rate of 16.1% over this period.

Poor Profitability

NXTD’s trailing-12-month EBITDA margin and net income margin are negative 16.2% and 71%, respectively. Moreover, its ROE, ROA, and ROTC came in at negative 86.4%, 29%, and 7.8%, respectively. Also, its trailing-12-month asset turnover ratio of 0.4% is 35.7% lower than the industry average of 0.7%. Furthermore, the company’s trailing-12-month cash from operations of negative $2.74 million compares with the industry average of $112.30 million.

POWR Ratings Reflect Bleak Prospects

NXTD has an overall rating of D, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. NXTD has a D grade for Quality. This justifies the stock’s negative profit margin.

It has a D grade for Stability, in sync with its 5-year monthly beta of 1.88.

Also, the company has a Momentum grade of C, consistent with its price decline over the past month.

In addition to the grades we’ve highlighted, one can check out additional NXTD ratings for Sentiment, Growth, and Value here. The stock is ranked #41 of the 46 stocks in the B-rated Technology – Hardware industry.

Bottom Line

NXTD has lost 57.5% over the past three months. While the rising need for technologically advanced healthcare applications and telehealth solutions has enabled the company to grow its customer base and develop innovative solutions to meet specific needs, its negative profit margin and inadequate financial strength continue to be major concerns for investors. Also, uncertainty surrounding its reverse stock split proposal vote to avoid Nasdaq delisting could pose a risk to NXTD’s stock in the near term. So, it could be wise to avoid the stock now.

How Does Nxt-ID, Inc. (NXTD) Stack Up Against its Peers?

While NXTD has an overall POWR Rating of D, you might want to consider investing in Technology – Hardware stocks with an A (Strong Buy) rating, such as Seiko Epson Corporation (SEKEY) and Canon, Inc. (CAJ).

NXTD shares fell $0.00 (-0.05%) in after-hours trading Wednesday. Year-to-date, NXTD has declined -75.00%, versus a 17.46% 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.

More...