Atomos delivers on growth amid selloff for tech stocks

Shares in global video technology company Atomos (ASX: AMS) rallied 13.7% on Friday following an upbeat sales update for the 6 months ending 31 December 2021.

Atomos was pleased to advise unaudited first half FY22 sales of $40.9m, delivering on its guidance provided on 23 November 2021. The figure represents a 24.7% increase against the previous period. 

Atomos said that the company navigated through global supply chain challenges with minimal disruption to its core products, Ninja V and Ninja V+. The Ninja product is a recording monitor with professional technical settings for perfect exposure and focus. 

Its product line did, however, experience some stock outages in first half FY21. Atomos reassured investors that the impact in the second half should be “less significant”. 

Atomos launched numerous recording monitor products in late FY21, with the company saying these products have provided “continued strong momentum into 1H22”.

Atomos expects new products scheduled for release over the next 6 months to provide further growth momentum. 

Commenting on the update, Atomos CEO Estelle McGechie said: 

“We see our sales only further accelerating in the second half of FY22 and are able to reconfirm our full year sales guidance of $95m-plus.”

“Furthermore, our cost measures and governance are robust enabling a reconfirmation of our full year EBITDA margin in excess of 12% for the underlying Atomos business,” McGechie added. 

To add some perspective, Atomos’ FY21 margins were 10.4% with $8.2m in earnings (EBITDA). 

Tech rout burns Atomos shares

Atomos is one of many technology stocks slammed by the prospect of higher interest rates. 

The company’s stock has declined almost 40% from September all-time highs of $1.78. 

More broadly speaking, higher interest rates raises the opportunity cost for investors betting on fast growing but loss making companies. When interest rates are near zero, investors are willing to front up a premium for those potentially large future profits. 

As interest rates rise, the market has the tendency to pivot away from risky plays and into more value-oriented pockets of the markets such as banks and consumer staples. 

The sharp discount in Atomos’ valuation has brought its revenue multiple down to 2.8 times FY21 revenue. 

What brokers think 

Two Australian stockbrokers covered Atomos in August last year.

The consensus is a BUY rating with a $2.47 price target (~70% upside).

• Morgans - BUY rating with a $2.67 price target

• Ord Minnett - HOLD rating with a $2.13 price target

From a fundamental perspective, the brokers expect strong demand across new and existing product suites with the view that accelerated consumer interest towards video content creation will benefit the business. 

Investors should note that the broker updates are somewhat outdated, especially given the recent underperformance of technology stocks.