Undervalued VIXS Systems is suffering from a disconnect, says Paradigm

ViXS Systems (TSX:VXS) is suffering from a disconnect that is creating a huge opportunity for investors, says Paradigm Capital analyst Daniel Kim.

Yesterday, ViXS reported its Q1, 2016 results. The company lost $1.76-million on revenue of $10.0-million, a topline that was up 34% over the same period last year, but down $1.3-million from the previous quarter.

“First quarter was a good start to fiscal 2016, with the company’s quarterly comprehensive loss significantly narrowing and with year-over-year revenue growth of 34 per cent,” said ViXS chairman Peter Currie. “ViXS is currently undergoing an important transition that will allow the company to realize its full potential as the leader in media processing solutions. Over the past quarter, the board has identified several outstanding candidates for the role of [chief executive officer], whom we believe can increase shareholder returns for ViXS. The board and members of the senior management team are working closely together to ensure the company is moving forward.”

Kim says the quarter came in better than he expected and says he likes the company’s continued ability to lower costs, its higher sales volumes and its improving product mix. He expects design wins across multiple verticals in the second half of this year.

“We believe there is a disconnect between market expectations and the current opportunity ahead of the company,” says Kim. “There has been explosion of content from user generated and OTT players, while simultaneously video is being consumed on an ever-expanding universe of screens. This puts extreme pressure on the current infrastructure, all while it continues to develop higher technological standards to suit consumer tastes. ViXS solutions directly address these pain points, and we see each member of the ViXS product family playing different roles to help sustain and drive growth through the near and long term.”

Founded in 2001, ViXS Systems is a semiconductor company that makes technology that is required to deliver true 4K UHD 10-bit
High Efficiency Video Codec (HEVC) content. The company’s The XCode 6400 SoC can decode HEVC-based content and display 4k resolution at 60 frames per second.

In a research update to clients today, Kim maintained his “Buy” rating and one year target price of $2.75 on ViXS Systems, implying a return of 159% at the time of publication.