Roth initiates coverage of Tempo Automation with a Buy rating

Roth Capital Partners launched coverage of Tempo Automation (Tempo Automation Stock Quote, Charts, News, Analysts, Financials NASDAQ:TMPO) on Monday, with analyst Suji Desilva starting the stock off with a “Buy” rating and arguing the company is positioned for growth in a highly fragmented market.

San Francisco-based Tempo Automation is a software-accelerated electronics manufacturer of printed circuit boards (PCBs) with a focus on the product development market. The company went public on the Nasdaq last month through a merger with ACE Convergence Acquisition, first announced in October, 2021. 

Desilva said the US domestic prototyping, design and printed circuit board assembly (PCBA) services market currently has a number of small providers, while it also features mostly manual offerings which slow the product development process. Desilva said Tempo’s automated platform stands apart from the industry norm, allowing for shorter turnaround cycles and is thus well-suited for the highly differentiated and innovative verticals that make up Tempo’s target market, areas such as aviation and defence, medical, space, semiconductor equipment and industrial.

“To-date, TMPO has captured business from several top-ten companies in each vertical and can grow with incremental ‘land and expand’ business as well,” Desilva wrote.

Further, with its AI-enabled platform learning from each new customer design, Desilva said Tempo will be able to extend its competitive advantage as it captures new customer design wins and manufacturing volume.

Looking at the stock, the analyst said Tempo has an attractive valuation at current levels. The stock has quickly dropped about 80 per cent over its short tenure, while Desilva projects a CAGR of 44 per cent over the next three years for the company.

With his “Buy” rating, Desilva asserted a $5.00 target price, which represents a 5x multiple of his 2025 EV/Sales estimates, discounted back annually at a 15 per cent rate. Desilva said his valuation represents a premium to its comparable peers’ 2023 average of about 2x but that the difference reflects Tempo’s growth opportunity.

“We expect investors to steadily gain confidence in TMPO’s ability to: 1) further penetrate large customers in target vertical markets, 2) scales its customer base to drive greater diversification, and 3) integrates additional acquisitions to drive scale through its differentiated platform,” he said.

Desilva thinks Tempo Automation will generate full 2022 revenue of $11.7 million and EPS of negative $3.87 per share and 2023 revenue of $11.7 million and negative $0.71 per share. At the time of publication, Desilva’s $5.00 target represented a projected 12-month return of 372 per cent.