LightPath Technologies: Buy, Sell, or Hold? Leading optical and infrared components manufacturer LightPath Technologies (LPTH) saw its share price surge over the past month on investor optimism...

LightPath Technologies, Inc. (LPTH) is a leading manufacturer and distributor of optical materials and high-level assemblies for the telecommunications, defense, medical diagnostics and automotive industries. The company's focus on serving larger multinational customers and increasing its production capabilities have helped it win a large volume of contracts. Its shares have advanced 21.9% over the past month after it confirmed that its optical solutions will be supporting the Mars Curiosity Rover's efforts in the NASA Science Exploration Program.

However, in the third quarter of its fiscal year 2021, LPTH received fewer orders from its large telecommunications customers. Also, the company's increased selling, general and administrative expenses (SG&A) costs, including stock compensation expenses and approximately $280,000 in expenses incurred due to the termination of several employees, have caused a significant reduction in its operating income in its last reported quarter. The stock has tumbled 17.6% year-to-date.

Closing yesterday's trading session at $2.69, LPTH's stock is trading 50.6% below its 52-week high. While the company continues to witness decent demand for its industrial applications and other public safety applications, its growth prospects look uncertain.

Here is what we think could influence LPTH's performance in the near term:

Positive Development

NASA's Jet Propulsion Laboratory (JPL) confirmed last month that ISP Optics, LPTH's subsidiary, will manufacture the optical element needed to support the Mars Exploration Program. The company's precision optics are uniquely developed as part of a long-term strategy to improve life experiences. In fact, as the space exploration programs gain momentum, LPTH is accelerating its innovative optical solutions to cement its position as an industry leader.

Business Headwinds

In its last reported quarter, LPTH saw a slowdown in orders from customers for its PMO products. Also, the company's specialty products category witnessed a decline in sales because some of its contracts from the third quarter of fiscal 2020 were not renewed in the third quarter of fiscal 2021. LPTH has also been facing traditional start-up inefficiencies because of an increased volume of orders and an accelerated pace of moving new lenses into production. .

Mixed Financials and Profitability

LPTH's revenue increased 23% year-over-year to $10.7 million in its fiscal third quarter, ended March 31, 2021. Its infrared product sales represented 60% of its consolidated revenues, while precision molded optics comprised 36% of consolidated revenues during this quarter. However, the company's revenue under its specialty products category declined 41% year-over-year to $334,000. Its gross margin declined 3% from its year-ago value to $3.9 million. Furthermore, LPTH reported a $223,000 net loss of, compared to net income of $816,000 in the prior-year period. Also, the company's EBITDA declined 45.4% year-over-year to $1.05 million.

LPTH's 38% trailing-12-month gross profit margin is 21.8% lower than the 48.5% industry average. Its ROE and ROA of 1.1 % and 0.8%, respectively, are 84% and 75.2% lower than their industry averages. And its 6.6% levered free cash flow margin is 48.1% lower than the 12.6% industry average. However, its asset turnover ratio and EBITDA margin of 0.8% and 14.5%, respectively, compare favorably with the 0.6% and 14.3% industry averages.

Consensus Price Target Indicate Potential Upside

Three Wall Street analysts have provided ratings for the stock, and each has rated it Buy. Currently trading at $2.69, analysts expect the stock to hit $4.43 in the near term, indicating a 64.7% potential upside. The price targets range from a low of $3.8 to a high of $5.5.

POWR Ratings Reflect Uncertainty

LPTH has an overall C rating of C, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with the weighting of each optimized to improve overall performance.

Our proprietary rating system also evaluates each stock based on eight different categories. LPTH has a C grade for Quality. This justifies the stock's mixed profitability. It also has a C grade for Stability.

Also, , the company has a Momentum grade of C, reflective of its year-to-date price performance.

In addition to the grades we've highlighted, one can check out additional LPTH ratings for Sentiment, Growth and Value here. LPTH is ranked #34 of 46 stocks in the B-rated Technology – Hardware industry.

Click here to view the top-rated stocks in the Technology – Hardware industry.

Bottom Line

LPTH's increased capabilities in accommodating various cutting-edge optical solution designs have helped the company diversify its customer base significantly. This is evidenced by its recent deal with NASA to support the Mars Exploration program. However, its underlying business performance has yet to show significant improvement. Given a slowdown in demand for some of its products, its growth prospects look uncertain now. So, we think investors should wait for its business and financials to show more promise before investing in the stock.

LPTH shares fell $2.69 (-100.00%) in premarket trading Friday. Year-to-date, LPTH has declined -31.12%, versus a 13.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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