Positive catalysts are aligning for Spectra7 Microsystems, says Mackie

Increasing revenue for Spectra7 Microsystems (Spectra7 Microsystems Stock Quote, Chart, News: TSXV:SEV) has Mackie Research Capital analyst Nikhil Thadani feeling bullish about the company’s near term prospects.

Yesterday, Spectra7 announced that it had confirmed orders or bookings of (U.S.) $2.5-million during the third quarter of 2015, an 85% increase over the same period last year. The company said majority of its growth is being driven by bookings for its high-performance embedded products.

“Spectra7’s record bookings reflect the unique value of the company’s products, technology and business model across a growing range of high-growth market segments including virtual reality, augmented reality, wearable computing and consumer electronics,” said CEO Tony Stelliga.

Thadani notes that media reports are saying the first Oculus Rift headset rolled off the production line last week, and he expects that tear-downs of consumer virtual reality headsets that show Spectra7 chips will be a “major positive catalyst”.

“While the exact timing of early revenue is challenging to predict, we are encouraged to see design wins start to translate into orders; revenue & cash flow should follow,” says Thadani. “At ~$2.5 -3 mln/qtr revenue, SEV should start to achieve EBITDA break-even, an important positive milestone.”

Thadani says his average selling price estimate of $3 per unit now appears to be conservative, something he thinks suggests the company has a strong competitive position in the virtual relaity ecosystem. The analyst now expects 2016 headset shipments of more than 4.7-milion at more than $3.90 per unit.

In a research update to clients today, Thadani maintained his “Speculative Buy” rating and one year target price of $1.00, implying a return of 113% at the time of publication.