Most investors think of Apple Inc. (NASDAQ: AAPL) or Sony Corp. (NYSE: SNE) when they think of consumer electronics, but these companies source their parts from companies like Intel Corp. (NASDAQ: INTC) and SMC Corp. (NYSE: SMC). Similarly, next generation technologies like virtual reality and wearables rely on unique, specialized sensors that are being quietly developed by companies like Flexpoint Sensor Systems Inc. (OTC: FLXT).
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In this article, we will take a look at Flexpoint’s progress in developing products across several verticals and what it means for investors.
Increasing Purchase Orders
Flexpoint’s revenue more than doubled during the second quarter relative to Q1 due to a combination of greater billable engineering services and increased sensor production. With a number of large contracts moving into production, investors should see on-going improvements reflected in the third and fourth quarters of the year. These improvements should continue moving into the early part of next year as the company ramps up production.
Management recently announced that purchase order volume for its Bend Sensors® increased during the third quarter across several contracts. Annualized production volumes are in the 800,000 to one million range and the backlog entering the fourth quarter is ‘extremely encouraging’, according to a recent press release. Additional toy and gaming manufacturers are expected to launch products in late 2016 or early 2017 to drive added revenue.
Beyond the third quarter, the company has achieved ‘production readiness’ certification and will go on to the next stages of production planning in the fourth quarter. The Horn Pad application with a U.S.-based global auto manufacturer has met key deliverable milestones, while management plans to extend its collaboration with various Tier 1 auto suppliers and manufacturers in other applications throughout 2017 and beyond.
Several Investor Catalysts
Flexpoint represents a unique opportunity given its significant diversification across industries, including automotive, consumer toys, virtual reality/augmented reality, consumer electronics, medical, robotics and wearables. In the future, the company’s core technologies could be applied to high growth markets like the Internet of Things (“IoT”) and Industrial Internet of Things (“IIot”) as well as other industries where flexible sensors provide benefits. The growth in these end markets could drive the company’s revenues significantly higher over the long-term.
In addition to this diversification, the company’s business model generates steady recurring revenue that is tied to its customers’ sales. The potential to license its technology – rather than manufacturing itself – also opens the door to higher margin opportunities down the road. Investors tend to prefer recurring revenue since it is a lot more predictable when developing financial models and estimating a company’s fair valuation.
Finally, the company remains at an early stage, which creates the greatest potential upside for investors. Since it is a microcap stock trading below $1 per share, many institutional investors can’t invest yet in the stock. The company’s plans to grow revenue, achieve a positive cash flow, and up-list to a higher exchange could expose the stock to these investors down the road, forcing its valuation higher and unlocking value for existing shareholders.
Flexpoint represents a unique opportunity to capitalize on growing sectors of the economy – such as virtual reality and Internet of Things – while remaining highly diversified. With a high margin recurring revenue business model, the company plans to achieve a positive cash flow and eventually up-list to a higher exchange to unlock shareholder value. Investors may want to consider taking a position at this early stage to realize the greatest upside.