Augmented reality technology company Vuzix Corporation (VUZI), which is based in West Henrietta, N.Y. designs, manufactures, markets, and sells augmented reality (AR) wearable display and computing devices for consumer and enterprise markets in North America, Asia-Pacific, Europe, and internationally. Over the past six months, VUZI’s shares have slumped 27.1% in price to close yesterday’s trading session at $12.31. The stock is currently trading below its 200-day moving average.

Despite reporting lower-than-expected third-quarter earnings, VUZI’s shares advanced significantly on November 9. The price rise was mainly a result of management’s bullish outlook. The company expects to introduce four new smart glasses products in 2022 and plans to diversify its sales channels to make way for additional new market adoptions globally. Also, VUZI expects to deliver revenue growth sequentially in the current quarter. However, the shares' gains were not sustained as they plunged 10.3% in price in their last trading session.

The augmented reality space has excellent scope for growth and possesses immense opportunities. Still, considering its weak bottom line and low-profit margins, VUZI needs to drive substantial growth to strengthen its position in the industry. Furthermore, its 1.43 beta indicates high volatility.

Here is what could shape VUZI’s performance in the near term:

Poor Profitability

VUZI’s 20.91% gross profit margin is 41.6% lower than the 35.78% industry average. Also, its negative 191.38% net income margin is substantially lower than the 6.40% industry average.

Moreover, VUZI’s negative 29.22%, 17.34%, and 18.18% respective ROE, ROA, and ROTC compare with the 17.25%, 6.25%, and 7.65% industry averages.

Stretched Valuation

In terms of forward EV/EBITDA, VUZI is currently trading at 60.43x, which is 485.2% higher than the 10.33x industry average. Also, its 45.47 forward EV/Sales ratio is 2,972.4% higher than the 1.48 industry average.

And VUZI’s trailing-12-month Price/Book is 73.2% higher than the 3.34x industry average, and its forward Price/Sales is 4,632.5% higher than the 1.32x industry average.

Top Line Growth Does Not Translate into Bottom-Line Improvement

VUZI’s revenues increased 9% year-over-year to $3.02 million in its  fiscal third quarter, ended September 30. Its loss from operations stood at $7.83 million, up 64.9% from the same period last year. And its net loss grew 66.9% from its year-ago value to $7.95 million. The company’s loss per common share was  $0.13. Also, its trailing-12-months net operating cash flow and levered cash flow were  negative $21.61 million and negative $21.86 million, respectively.

POWR Ratings Reflect This Bleak Prospects

VUZI has an overall F rating translating to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of F for Quality, which is consistent with its lower-than-industry profit margins.

VUZI also has an F grade for Value. Its stretched valuations justify this grade.

Of the 44 stocks in the Technology – Electronics industry, VUZI is ranked #43.

Beyond what I have stated above, one can also view VUZI’s grades for Sentiment, Growth, Momentum, and Stability here.

View the top-rated stocks in the Technology – Electronics industry here.

Bottom Line

Even though the augmented reality market is growing rapidly and is expected to support VUZI’s long-term growth, the company’s short-term prospects look bleak, given its low profitability and lofty valuation. Furthermore,  the Street expects the company’s EPS to remain negative in the coming quarters. So, we think it could be wise to avoid the stock now.

How Does Vuzix Corporation (VUZI) Stack Up Against its Peers?

While VUZI has an overall POWR Rating of F, one might want to consider investing in the following Technology – Electronics stocks with an A (Strong Buy) rating: AstroNova, Inc. (ALOT), Brother Industries, Ltd. (BRTHY), and AU Optronics Corp. (AUOTY).

VUZI shares were trading at $12.61 per share on Thursday morning, up $0.30 (+2.44%). Year-to-date, VUZI has gained 38.88%, versus a 25.60% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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