On Friday, B.Riley maintained a positive stance on AXT, Inc. (NASDAQ:AXTI), a supplier of semiconductor substrates, despite the stock's recent plunge. The firm increased its price target on the company's stock to $5.50, up from the previous $3.80, while reiterating a Buy rating.
The rating firm's analyst highlighted that the downward movement in AXTI's share value on Thursday was a reaction to a short report that contained what they considered to be misleading information. The analyst clarified that their February upgrade of AXTI was based on the company reaching a fundamental inflection point after a prolonged period of inventory correction, not on the outcome of Tongmei's initial public offering (IPO) in China.
AXTI is recognized as a key provider of indium phosphide (InP) substrates, which are essential components in electro-absorption modulated lasers (EMLs). These lasers are increasingly used in high-speed optics, an area that is expected to grow significantly due to the rapid adoption of artificial intelligence (AI) technologies. The firm's analyst believes that AXTI is well-positioned to benefit from this expansion in the AI sector.
Regarding the IPO of Tongmei, a related concern, the analyst acknowledged that the process has been lengthier than anticipated but maintained optimism about its progress. The firm defended AXTI against the claims made in the short report and stood by its assessment of the company's prospects.
The new price target of $5.50 is based on an enterprise value-to-sales (EV/sales) multiple of 2.0 times, which is an increase from the previously used multiple of 1.8 times. This valuation adjustment is grounded on the firm's 2025 estimates, which have been revised from their 2024 projections.
InvestingPro Insights
Recent data from InvestingPro provides additional context to AXT, Inc.'s (NASDAQ:AXTI) financial and market performance. The company's market capitalization stands at $138.55 million, reflecting its current valuation in the market. Despite experiencing significant revenue contraction over the last twelve months, with a decrease of 46.29%, AXTI's stock has shown a strong return over the past three months, with a price total return of 28.8%. Additionally, as of the latest data, AXTI's price to book ratio is 0.69, which may suggest that the stock is potentially undervalued relative to its assets.
InvestingPro Tips indicate that while analysts have revised their earnings upwards for the upcoming period, they do not expect the company to be profitable this year. This is consistent with the firm's recent performance where it has not been profitable over the last twelve months. However, AXTI does have liquid assets that exceed short-term obligations and operates with a moderate level of debt, which may provide some financial stability. For investors interested in the semiconductor sector and companies like AXTI, these insights could be crucial for making informed decisions.
For more detailed analysis and additional InvestingPro Tips, visit https://www.investing.com/pro/AXTI. There are 9 more InvestingPro Tips available to help you get a comprehensive understanding of AXT, Inc.'s financial health and market position. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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