Introduction
Ray Dalio once said, “The most important thing in investing is to understand the big picture. And right now, that big picture is dominated by technological disruption.” This perspective provides a foundation for the stock we will be analyzing today.
In the era of rapidly evolving technological landscape, with AI leading the charge, innovation within the networking ecosystem is growing at an unprecedented pace.
POET Technologies Inc. stands out as a leader in the opto-electronic networking solutions industry, offering a compelling opportunity for investors and financial experts to capitalize on. For those who grasp the transformative potential of POET Technology’s products, the value this company can generate is clear.
Join us as we delve into the financial analysis of POET Technologies and explore whether this penny stock has the potential to be a worthy addition to your portfolio.
Company Overview
POET Technologies Inc. is a technology manufacturing company. Headquartered in Toronto, Canada, the company has a rich history dating back to its establishment in 1972. Originally known as Opel Technologies Inc., the company adopted its current name, POET Technologies Inc., in June 2013. Specializing in integrated opto-electronic solutions, the company serves its customers across the United States, Singapore, and China.
While the complexity of POET Technologies’ products may be difficult for a layman to fully understand, the company’s long-standing presence in the semiconductor industry speaks volumes.
In 2024 alone, POET Technologies received three notable awards: 2024 Best in Artificial Intelligence (Global Tech Awards), 2024 AI Innovator of the Year (Merit Awards), and 2024 Best Optical AI Solution (AI Breakthrough Awards), highlighting their dedication to technological innovation.
Financial Performance
Now that we’ve introduced POET Technologies, it’s time to dive into the numbers. You might want to wear your financial analyst hat as we explore whether POET Technologies is a good fit for your portfolio.
Stock Price Movement
A glance at POET Technologies Inc.’s stock price chart over the past five years reveals a predictable trend. Notably, the stock price surged right after the COVID-19 pandemic lockdowns lifted and the economies were opening. This surge could also be attributed to the significant disruptions in the semiconductor market’s supply chain, which drove the demand higher.
POET Technologies operates within a niche market, attracting a specialized client base. The stock price trend closely mirrored broader market patterns during the 2020-2021 pandemic period. The year 2021 was the greatest in terms of the stock price as the company’s stock price reached its highest and was trading at CAD 13.70 on 31st January 2021. However, for the remainder of the year, the stock experienced consistent volatility, ultimately declining by over 29% by the year’s end.
In 2022, the stock price hit CAD 12.44 in March and started declining afterwards. The stock kept declining in 2023 with a few uphill streaks before hitting an all-time low of CAD 1.07 within the last 5 years. This was a 92% decrease from the highest price that the stock hit in 2021. Since the beginning of 2024, the stock has shown a strong recovery, trending upward and currently trading at CAD 5.59.
Financial Metrics
Revenue:
Analyzing the Revenue figures for POET Technologies reveals a pattern marked by significant fluctuations. Although revenue data for 2019 and 2020 is unavailable, the company reported revenue of $209k in 2021.
The following year, POET Technologies experienced substantial growth, with revenue rising to over $552k, representing a 164.35% Y/Y increase. However, much like the stock trend, 2023 saw a decline in revenue, dropping to $465k, a Y/Y decrease of 15.73%. While these fluctuations could be influenced by various underlying factors, the major reason seems to be the negative net income that POET technologies reported throughout the past five years.
Net Income:
The Net Income trend for POET Technologies raises some concerns, as the company has consistently reported negative figures over the past five years. Despite fluctuations, there hasn’t been a single year with positive net income. I
n 2019, the company reported a net loss of $5.95 million, reflecting a 63.53% Y/Y improvement. However, this trend reversed in 2020, with the net loss widening to $18.17 million, a steep 205.22% Y/Y decline. In 2021, the loss slightly narrowed to $15.67 million, showing a 13.76% Y/Y improvement.
Unfortunately, the situation deteriorated again in 2022, with the net loss expanding to $21.04 million, a 34.26% decrease. The net loss for 2023 showed some stability, shrinking to $20.27 million, marking a modest 3.66% improvement. Although there are signs of stabilization, high operational expenses continue to be a significant challenge for the company.
Cash Flow:
Analyzing POET Technologies’ Cash Flow chart reveals a highly volatile trend, with most cash inflows stemming from investment and financing activities. In 2019, the company generated $5.39 million from investing activities and $3.14 million from financing activities. In 2020, cash flow from investing surged by 158.57%, while cash flow from financing dropped by 62.92% Y/Y. The highlight came in 2021, when cash flow from financing reached a remarkable $26.55 million, representing a staggering 2,184.27% Y/Y increase.
However, the trend turned negative in 2022 and 2023, as the company struggled to generate cash from both investing and financing activities. In 2022, the net cash flow dropped by 170%, resulting in a negative cash flow of -$5.71 million. By 2023, cash from investing stood at -$1.25 million, while financing provided $10.20 million, yet the company still ended the year with a net cash deficit of -$6.21 million.
Financial Stability
The stock analysis of any company provides significant guidance, however, for anyone to understand the overall financial situation of a company, it is important to assess some of the variables and ratios generated using the balance sheet of the company.
First, let’s assess the Current Ratio of POET Technologies that will present the company’s current liquidity situation.
The balance sheet shared by the company on 6/30/2024 shows that the company’s total assets are worth $28,314,339 and total liabilities are worth $3,261,190. Calculating the current ratio gives us,
Current Ratio = 28,314,339 /3,261,190 = 8.68
This current ratio is great and shows that the company is in a healthy position in terms of liquidity.
Now, let’s calculate Debt-to-Asset Ratioto analyze the solvency situation of the company.
The balance sheet shared by the company on 6/30/2024 shows that the company’s total assets are worth $28,314,339 and total debt is worth $3,485,347. Calculating the Debt to asset ratio gives us,
Debt to Asset Ratio = 3,485,347/28,314,339 = 0.12 or 12%
Anything below 40% is considered good, which shows that POET Technologies is not under any bankruptcy pressure for now or in the near future.
Market Potential and Recent News
Technology is everywhere and anyone who has already established its footing within the ecosystem is currently in a very strategic position. POET Technologies Inc. is operating in a very competitive landscape, however, their design capabilities coupled with advancements in AI present a huge potential for them.
The networking industry is gaining momentum and as the world becomes more virtual, networks will become more complex. In this scenario, high-speed, low latency products that POET Technologies offers would be a great hit. Considering the overall market scenario and news like POET Technologies securing USD 15 million in private placement depicts a strong future for the company.
Investors Perspective
The wind around the stock is currently very positive. POET Technologies has won 3 prestigious awards this year which have brought the company into the limelight. Although there is a very limited analysis available regarding the stock, those who have shared their views have a Strong Buy position.
If we review the stock’s current year performance, the stock has recovered +245% in terms of its value. If the stock keeps following its current trajectory, it will easily surpass its five-year highest price of CAD 13.7 which would be a 145% increase from the current price of CAD 5.59.
Following the advice of Jeff Bezos, who said, “Given a ten percent chance of a 100 times payoff, you should take that bet every time.” Here the chance is over 100 times, if you are willing to take the bet on this penny stock.
Conclusion
POET Technologies presents an interesting opportunity for investors who can appreciate its long-term potential despite its current financial fluctuations. The company’s strengths lie in its innovative opto-electronic solutions, recent achievements, and strong liquidity. While it has faced challenges in maintaining consistent revenue growth and profitability, its low debt-to-asset ratio and significant market potential in the AI-driven landscape highlights its ability to sustain itself and possibly thrive in the coming future.
Furthermore, the company’s performance in securing substantial funding and prestigious awards speaks to its resilience and the confidence the market places in its capabilities. Finally, as Peter Lynch emphasizes that understanding the stock is more important than its current price by saying, “You should not buy a stock because it’s cheap but because you know a lot about it.” POET Technologies could become a good fit for your portfolio if you understand the value their products can create.
Article By: Hamza Bashir. An avid investor and strategic consultant with expertise in stock analysis. He has been investing, analyzing, and writing articles on the stock, cryptocurrency, real-estate, and commodities market for over 3 years.