eMagin Corporation (EMAN) manufactures miniature displays using organic light emitting diode (OLED) technology. Its products have applications in the military, healthcare and industrial sectors. EMAN entered an agreement with the U.S. Department of Defense last July under which it will receive $33.60 million funding over a 22-month span to expand the critical industrial base production of OLED microdisplays. This follows EMAN’s $5.50 million grant from the Department of Defense for industrial base analysis and a sustainment program for OLED supply chain assurance.

As EMAN is the sole domestic supplier of high-performance OLED microdisplays. These microdisplays have immense applications in military equipment. The company’s contracts with the defense department make it an attractive stock. Shares of EMAN have gained 541.1% over the past year and 118.2% year-to-date. The stock has gained 36.9% over the past month to close yesterday’s trading session at $3.60.

However, despite securing government contracts, EMAN’s financials have yet to improve. Also, the company’s forward Price/Earnings multiple is negative, placing a bleak spin on its prospects.

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

Poor Financials

EMAN’s trailing-12-month revenues were $29.47 million, up 7.8% year-over-year. Its $6.64 million gross profit translates to a gross profit margin of 22.53%. However, this margin is 53.6% lower than the 48.52% industry average. EMAN incurred a $17.46 million net loss over the past year. Its loss per share stood at $0.27, and its trailing-12-month ROE is negative 108.31%. The company’s ROA and ROTC are negative also.

For the first quarter, ended March 31, 2021, EMAN’s non-GAAP product revenues increased 8.4% year-over-year to $6.11 million. As a result, the company’s total revenues increased marginally from the same period last year to $6.77 million over this period. Its government contract revenues declined 36.4% from the same period last year to $0.70 million.

Despite a $2 million gain due to the forgiveness of the company’s Paycheck Protection Program loan, EMAN reported a $7.38 million net loss  over this period.

Liquidity Risk

EMAN is bleeding cash from its operations, as evidenced by its  $5.13 million net operating cash outflow over the past 12 months. With $13 million in outstanding debt, EMAN’s poor cash flows raise concerns regarding its ability to meet its outstanding obligations. The company’s trailing-12-month total debt is 2.22 times its $5.86 million levered free cash flow. Also, its working capital declined 10.2% year-over-year.

Unfavorable POWR Ratings

EMAN has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

EMAN has a D grade for Stability and F for Value. The stock’s relatively high five-year 1.73 monthly beta is in sync with the Stability grade. Also, EMAN’s 8.34 forward Price/Sales multiple is 93.1% higher than the 4.32 industry average, thereby justifying the Value grade.

Of the 98 stocks in the Semiconductor & Wireless Chip industry, EMAN is ranked #92.

In addition to the grades I’ve highlighted, one can view EMAN Ratings for Momentum, Sentiment, Quality and Growth here.

Click here to view the top-rated stocks in the Semiconductor & Wireless Chip industry.

Click here to checkout our Semiconductor Industry Report for 2021

Bottom Line

EMAN stated in its latest earnings report that it expanded its manufacturing footprint by 25% owing to contracts signed with the Department of Defense. Though the company is scheduled to receive nearly $40 million in capital funding over the next couple of years, analysts expect its  EPS to remain negative until at least 2022. Thus, we think the stock is best avoided now.

EMAN shares were trading at $3.57 per share on Wednesday afternoon, down $0.03 (-0.83%). Year-to-date, EMAN has gained 116.36%, versus a 12.67% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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