Is It Too Late to Buy Vuzix Stock?

Vuzix (VUZI -1.49%), a maker of augmented reality (AR) glasses for enterprise clients and original equipment manufacturer (OEM) customers, took its investors on a wild ride over the past few years. On April 8, 2021, its stock closed at its all-time high of $30.57 a share, the result of a massive 1,870% rally over the previous 12 months. At its peak, its market cap hit $1.9 billion -- a whopping 146 times the revenue it would actually generate in 2021.

Vuzix's rally was driven by two catalysts. First, its annual revenue increased at a compound annual growth rate (CAGR) of 43% from 2016 to 2021, making it a popular target for the bulls during the buying frenzy in hypergrowth stocks, meme stocks, cryptocurrencies, and other speculative investments in 2021. Second, the growth of the metaverse market -- led by companies like Meta Platforms -- drove more investors to AR, VR, and metaverse-related stocks.

Image source: Vuzix.

But by Dec. 28, 2022, Vuzix's stock dropped to just $3.27 per share. It shed nearly 90% of its market value as the supply chain challenges and macroeconomic headwinds caused its revenue to decline 10% to just $11.8 million in 2022. Rising interest rates also popped its bubbly valuation and drove investors toward more conservative investments. As a result, many investors had likely given up on Vuzix by the end of 2022. But despite all those challenges, the company's stock has bounced back by nearly 50% since the beginning of 2023. So let's see why Vuzix's stock soared -- and whether it's too late to jump back in.

Its growth is accelerating again

Vuzix doesn't produce any large mixed-reality headsets like Apple's Vision Pro, Meta's Quest 3, or Microsoft's HoloLens. Instead, it takes a lighter and simpler approach with its Blade AR smart glasses, which are only slightly bulkier than traditional glasses. These glasses target enterprise users with speakers, microphones, and cameras for remote collaboration, an integrated barcode scanner for analyzing products, and even UV protection for outdoor jobs. That focus sets the Blade apart from consumer-facing smart glasses like Meta's Ray-Ban Stories and Snap's Snapchat Spectacles. Vuzix also develops custom OEM AR glasses for specific industries and jobs.

Vuzix's commitment to its niche enabled it to expand across the defense, industrial, and healthcare sectors. That expansion was interrupted by macro headwinds in 2022, but its growth accelerated significantly in the first quarter of 2023.

Data source: Vuzix. YOY = Year over year.

CEO Paul Travers attributed that acceleration to its "increased customer adoption in North America," its "strong progress in terms of product development, technology advancement and new business engagements," as well as an "influx of customer interest" in its OEM services across the defense, consumer, and enterprise-focused markets. Travers also expects Moviynt -- the cloud-based mobile workflow, manufacturing, and logistics management software provider it acquired last November -- to deepen its penetration of those markets and complement its own barcode-scanning capabilities.

Vuzix didn't provide any precise guidance for the rest of the year, but Travers said it still had a "strong book of business with identified opportunities" in both the enterprise and OEM markets, and that it was on track to generate record overall revenue for the full year. Analysts expect Vuzix's revenue to rise 52% in 2023 and grow 67% to $30 million in 2024.

However, Vuzix's net loss also widened from $40.4 million in 2021 to $40.8 billion in 2022, and analysts expect it to lose at least $40 million annually in both 2023 and 2024. That might seem like a precarious situation for a company that only held $63.2 million in cash and equivalents at the end of its latest quarter, but its low debt-to-equity ratio of 0.1 should still give it plenty of room to raise fresh cash if its growth cools off again.

Is it too late to buy Vuzix's stock?

Vuzix currently trades at about $5 a share with a market cap of $340 million. It still isn't cheap at 19 times this year's sales and 11 times next year's sales, but it looks more reasonably valued than it did during the meme stock rally of 2021.

I'd be willing to nibble on Vuzix's stock as a speculative play at these levels, especially as Apple and Meta drum up fresh interest in the AR market again, but I wouldn't accumulate a larger position until its valuation cools off. Simply put, it's not too late to buy Vuzix -- but I'd slowly get into this volatile stock instead of chasing the recent stampede of bulls.