On Tuesday, AXT, Inc. (NASDAQ:AXTI) received an updated price target from an analyst at Craig-Hallum, who raised the target to $5.00 from the previous $3.75, while keeping a Buy rating on the stock. The adjustment followed AXTI's preannouncement of solid first-quarter results, which are anticipated to surpass their earlier guidance.
AXTI disclosed that its sales for the first quarter are expected to fall between $22.4 million and $22.7 million. This forecast modestly exceeds the higher end of their prior guidance range of $20 million to $22 million. The company has observed continued strength in its indium phosphide (InP) and gallium arsenide (GaAs) products across several end markets, including applications in artificial intelligence and data centers (AI/DC).
The positive preannouncement came shortly after a report was released presenting a short thesis on AXTI, which the analyst described as "a complete farce." The preannouncement is seen as a demonstration against the short thesis, indicating the company's resilience and potential for growth.
AXTI has been experiencing a period of heavy inventory burns for over a year, but is now expected to see a return to growth and improved profit margins. The company is witnessing relative strength across much of its business, with particular interest in two areas: InP-based lasers for cutting-edge data communication transceivers that support AI, and the potential for GaAs-based RF power amplifiers in the handset industry, a sector where AXTI has not been heavily involved recently.
The analyst noted that the largest optical transceiver manufacturer, COHR, announced the world's first 6-inch InP fabrication facility, for which AXTI is believed to be the first substrate supplier. This positions AXTI to benefit as the calendar year 2025 approaches.
The firm's confidence in AXTI's future performance is supported by the expectation that the company is well-positioned for multiple "beat and raise" quarters, which underpins their decision to maintain a Buy rating and increase the price target.
InvestingPro Insights
With the recent positive outlook on AXT, Inc. (NASDAQ:AXTI) from analysts, it's worth noting some key metrics and insights from InvestingPro that could provide a broader context for investors. The company's market capitalization stands at $153.61 million, reflecting its valuation in the market. Despite the optimistic revenue forecast, AXTI's P/E ratio is currently negative at -8.49, indicating that the company is not generating profits relative to its share price. However, the company's price to book ratio as of the last twelve months ending Q4 2023 is 0.77, suggesting that the stock may be undervalued relative to its assets.
InvestingPro Tips highlight that AXTI has seen a significant price decline over the last week, and generally, the stock trades with high price volatility. This could be a point of caution for investors looking for stability. Additionally, the company's gross profit margins are considered weak, which may be a concern for profitability in the short term. On a more positive note, AXTI has liquid assets that exceed its short-term obligations, providing some financial flexibility. For investors seeking more comprehensive analysis, there are additional InvestingPro Tips available, which can be accessed with a subscription. Use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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