Shares of augmented reality technology company Vuzix (VUZI -1.39%) soared by 102.1% during the first six months of the year, according to numbers from S&P Global Market Intelligence, although that figure is somewhat deceiving. Shares have also been retreating since April, reaching their lowest close in months on Friday of last week.
After years of lackluster stock performance, things finally began to click for Vuzix late last year, reflecting a slew of new developments, great results, and partnership deals. The party kicked up a notch in November, when the company reported 140% revenue growth in the third quarter on an even bigger increase in unit shipments of its smart glasses. In February, the company announced it had completed the first stage of development for a head-mounted AR device to be used during cancer surgeries. And, since the pandemic began, the company's technologies have been tapped for a variety of remote-observation tasks, helping reduce people's risk of exposure to the coronavirus -- demonstrating that augmented reality tech can have real-world benefits.
The corresponding share price advance, however, wasn't particularly well-timed. Though Vuzix stock rallied by more than 600% from mid-December to April's high, it has since lost more than half its value. Most of that sell-off took shape in May. In short, its big first-half gain is the remainder of an enormous but untempered surge prompted by admittedly bullish headlines.
In most cases, triple-digit rallies of this type are one-offs that end in spectacular crashes, and those crashes rarely seem to be followed immediately by recovery moves. This one may well follow the usual pattern. However, interested investors should not be too quick to dismiss this stock based on its current, decidedly bearish momentum.
The fact is, Vuzix is the real deal.
It is overvalued by any stretch of the imagination, still operating at a loss, and shares trade at more than 40 times revenue. It will be a long while before it can justify even its now-reduced price based on its underlying fundamentals.
The market also rewards progress, however, and with an increasing number of prospective customers seeing the potential of augmented reality, analysts project sales growth of more than 90% this year, followed by similar growth in 2022, pushing the company closer to profitability. This stock remains a pick more for speculators than conservative investors, but it wouldn't be wrong to add it to your watch list and keep an eye out for what looks like a bottom.