Headquartered in Beijing, China, WiMi Hologram Cloud Inc. (WIMI - Get Rating) provides augmented reality (AR) based holographic services and products. It operates in three segments: AR Advertising Services; AR Entertainment; and Semiconductor Related Products and Services. The stock’s price has slumped 4.4% over the past year and 5.7% year-to-date to close yesterday’s trading session at $5.43. However, WIMI has gained 31.5% over the past month.

Furthemore, the stock gained significantly after the company announced the submission of a trademark application for “WIMI METAVERSE” on October 29. WIMI expects the trademark to help the company further improve its  intellectual property protection system, maintain the leading position in technology, and enhance its core competitiveness. Also, the approval of its HoloPluse LiDAR to enter the U.S. market has helped the stock trade higher so far this week. Shares of WIMI have gained 38.9% in price over the past five days.

The AR industry is growing at a rapid pace with its fast adoption across several industries. Indeed, the AR market is expected to expand at a 43.85 CAGR  from 2021 – 2028. Also, the growing market for smartphones, smart glasses, and other handheld and wearable devices is driving the adoption of mobile AR technology. However, the industry is small and is still developing. Metaverse is a broad term. It generally refers to shared virtual world environments, which people can access via the internet.

Click here to check out our Cloud Computing Industry Report for 2021

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

Stretched Valuation

In terms of non-GAAP forward P/E, WIMI is currently trading at 54.67x, which is 182.6% higher than the 19.35x industry average. Also, its 38.28 forward EV/EBIT ratio  is 124.7% higher than the 17.04 industry average.

Weak Financial position

WIMI’s total revenue increased 202.2% year-over-year to RMB516.20 million ($79.90 million) for the six months ended June 30, while its net income increased 40.3% from its RMB32.10 million ($5 million) year-ago value. However, WIMI’s trailing-12-months net income and EBITDA came in at negative RMB165.43 million ($25.86 million) and RMBi26.02 million ($19.70 million), respectively. The company’s total debt stood at RMB98.71 million ($15.43 million). WIMI’s trailing-12-months net operating cash flow was negative RMB65.63 million ($10.26 million). In addition, its trailing-12-months EPS was  negative $0.33.

Lower-Than-Industry Profit Margins

WIMI’s 24.26 gross profit margin is 52.7% lower than the 51.30% industry average. Also, its 0.04% capex/sales ratio is 98.9% lower than the 3.75% industry average. Moreover, the stock has net income  and EBIT margins of negative 15.02% and 12.77%, respectively.

Furthermore, WIMI’s negative 19.69%, 14.40%, and 10.27% respective ROE, ROA, and ROTC compare with the 8.48%, 2.68%, and 4.45%industry averages.

POWR Ratings Reflect Bleak Prospects

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

The stock has a grade of D for Stability, which is consistent with its 1.45 beta.

WIMI also has a D grade for Quality. Its  lower-than-industry profit margins justify this grade.

Of the 74 stocks in the Technology – Services industry, WIMI is ranked #52.

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

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

Bottom-Line

WIMI is benefiting significantly from the growing augmented reality market. However, AR is an emerging technology and should take a while before the technology becomes fully commercialized and goes mainstream. Also, considering WIMI’s stretched valuations and weak profitability, it could be wise to avoid the stock now.

How Does WiMi Hologram Cloud Inc. (WIMI) Stack Up Against its Peers?

While WIMI has an overall POWR Rating of D, one could check out these other stocks within the Technology – Services industry holding an A (Strong Buy) rating: Celestica, Inc. (CLS - Get Rating) and NetScout Systems, Inc. (NTCT - Get Rating).

Click here to check out our Cloud Computing Industry Report for 2021

WIMI shares were trading at $5.32 per share on Thursday afternoon, down $0.11 (-2.03%). Year-to-date, WIMI has declined -7.64%, versus a 25.97% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

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. More...

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