LightPath Technologies (NASDAQ: LPTH) is a vertically integrated provider of infrared, photonics, and optics solutions for different industries, including commercial, defense, telecommunications, industrial and medical.

LPTH’s product groups include precision molded optics (PMO), infrared products, and specialty products. The company’s products include molded glass aspheric lenses and assemblies, infrared lenses and thermal imaging assemblies, and proprietary Black DiamondTM (BD6) chalcogenide-based glass lenses. The company also offers custom optical assemblies that include complete engineering design support.

Recent Events

On July 8, LightPath Technologies announced that a multi-year supply agreement worth more than $2.4 million had been renewed, a rise of 50% over the company’s earlier contract. As a part of this agreement, LPTH will supply two types of glass aspheres that enable industrial engineering companies to manufacture precision measurement and motion control devices.

Fiscal Q3 Results

In the fiscal third quarter, LPTH reported revenues of $10.7 million, up 23% year-over-year. The company reported a loss of $223,000 in Q3 versus net income of $816,000 in the same quarter last year.

However, the gross margins declined 3% year-over-year to $3.9 million in Q3, amounting to 36% of revenue. The drop in gross margin was a result of product mix, where infrared products, which have a lower margin than PMO products, made up 60% of the company’s total revenues.

Following the Q3 results, H.C Wainwright analyst Scott Buck reiterated a Buy and a price target of $5.50 (125% upside potential) on the stock. The analyst said in a note to investors, “we believe the longer term opportunity given product demand, driven by secular growth trends in both PMO and infrared lenses remains favorable as highlighted by the robust demand during fiscal 3Q21.”

“In addition, the company’s strategic shift towards a more solutions and service oriented product should drive both revenue growth and margin expansion in FY2022 and beyond,” Buck added.

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Decline in Order Backlog

The company had an order backlog of $19.5 million as of March 31, a decline of 14% year-over-year. LightPath stated that the decline in order backlog was a result of a lack of renewals of major contracts and fewer new orders from one of its “large telecommunications customer, which orders are typically renewed each quarter.” (See LightPath Technologies stock charts on TipRanks)

LTPH expects this slowdown to be temporary, “as inventory levels are aligned to the next phase of the 5G rollout.”

Analyst Scott Buck commented on the decline in order backlog, “Looking forward, the company suggested it continues to make progress in its transition from a component manufacturer to a full solutions and services oriented company.”

“However, these larger transactions are less regular in nature and may continue to cause larger swings in the quarter-end value of the company’s backlog,” Buck added.

Termination of Employees

In April this year, LightPath terminated several employees of its Chinese subsidiaries, LPOIZ and LPOI, after being found guilty of misappropriating proprietary technology. The company incurred various expenses totaling $194,000 in fiscal Q3 as a result of the investigation.

LTPH stated in its company filing that its Chinese subsidiaries could be adversely impacted in terms of its sales in China and operating results, particularly over the next two quarters. The company also expects to incur additional legal fees and expenses, primarily in fiscal Q4.

Analyst Buck commented, “With new product production headwinds expected to subside in the coming weeks and some additional legal costs expected in fiscal 4Q21, we expect these headwinds to continue in F4Q21, albeit at less significant levels.”

Consensus among analysts on Wall Street is a Strong Buy based on 3 Buys. The average LightPath Technologies price target of $4.67 implies approximately 87% upside potential to current levels.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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