Akoustis Technologies (NASDAQ:AKTS) has been more of a research and development, semiconductor/electronics play until 2020. The company is focused on creating next generation radio frequency [RF] filters for wi-fi and wireless phone services using mobile devices, radios and smartphones. Each successive generation of wireless technology is requiring even more advanced chips to run the highest speeds possible, with the lowest amount of signal disruption. 5G (and the 2020 industry discussion of 6G standards on the next wave of wireless speed improvements) requires much better filters to run properly. Akoustis is trying to plant itself as the filter technology of choice for 6G gadgets and is making real in-roads into design wins for 5G products this year.
Its products are considerably smaller in size than the traditional RF filters of today, with better frequency coverage and reliability, according to the company. With over 100 manufacturers of various RF band pass filters internationally, the company is trying to become the go-to source for higher speed networks and applications. It faces real competition from the largest RF filter makers, including Skyworks (NASDAQ:SWKS) and Qorvo (NASDAQ:QRVO). They will not give up market share without a fight.
Just this week, Akoustis announced a new customer order for its 5G XBAW filters, expected for delivery later in 2021. Michael Fitzsimmons, an engineer by trade, wrote a nice Seeking Alpha article in early November on the company here. He feels the stock has decent long-term potential as an investment. I am not an expert on the Akoustis technology and patents, but have noticed its equity quote breaking out of a price basing pattern since April, with robust volume and momentum characteristics this week. The interesting fact for bulls is the stock was heavily shorted going into the customer win news, with 22% of outstanding shares sold by bears. The short strategy is operating losses and cash burn will keep a lid on the stock quote, a waiting game for better revenue and income results by the R&D firm.
My investment thesis revolves around little being expected from this company on Wall Street, with short interest so high. And, against a market capitalization of $400 million, the adoption of its RF filter technology could lead to years of rapid business growth and stock gains. The company does not have much for sales yet and is losing money getting ready for order flow. With $37 million in cash at the end of Q3 in September, Akoustis has enough liquidity to survive into the autumn of 2021 without any sales. The last 12 months have generated cash burn of about $25 million. Total liabilities are today about the same as the value of its plant and equipment. I suspect the company will issue some new equity for operating funds next summer, capitalizing hopefully on new order developments between now and then. It is entirely possible the stock will be trading above $20 a share when dilutive issuance is made again.
The Technology Story
Below are some of the more interesting slides from the company’s end of November investor presentation, explaining the business and its market sales opportunity in future years.
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Image Source: Company Presentation
The Bullish Stock Picture
I have been looking for a down day to purchase shares this week, but one hasn’t happened yet. The shorts are getting nervous. Something of a “squeeze” on their holdings has materialized with the new customer order news and dramatically increased trading volume. The stock has closed higher in price 10 days in a row, with large gains again today so far. Quite typical of the early phase of a short squeeze, a major streak of up days can be a clue of abnormal, intermediate-term demand for shares. You can view 8-month and 2-year charts below, highlighting the breakout taking place for Akoustis.
I particularly like the super-strong Negative Volume Index and On Balance Volume measurements. In addition, an investment made in Akoustis over the last several years is now beating the S&P 500 equivalent price gain.
For technology investors, short squeeze hunters, and growth-focused portfolios, Akoustis Technologies could be a solid idea to buy in coming days. I am personally waiting for a smarter entry point closer to $10 a share. However, the long-term potential advance in its shares far outweighs fighting over a dollar or two upfront. I have read several articles that seem to suggest the enterprise’s filters could be the next generation solution, with a possible total market value in the $5-10 billion a few years out. If you are already thinking about and researching 6G investments, Akoustis should be near the top of your list.
Remember, R&D companies are higher-risk opportunities. Since the company has yet to achieve marketplace acceptance for its RF filter products, the downside to your investment is quite significant. If its semiconductors/electronics do not perform as expected, or are too richly priced, competitors will keep business from the firm. Another bearish argument expressed by short sellers: the company has been trying to attract customers for years, without much success. As a result, I will keep any future position small in size, mindful of investment risk.
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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in AKTS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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