Is Avid Technology a Buy Below $30?
Media and entertainment technology provider Avid Technology (AVID) saw strong demand for its products in 2021 and ended the year with healthy margins and free cash flow. However, the stock...
Media and entertainment technology provider Avid Technology (AVID) saw strong demand for its products in 2021 and ended the year with healthy margins and free cash flow. However, the stock has slumped 11% in price year-to-date amid the broader market pullback, closing yesterday's trading session at $29. So, will it prove wise to bet on AVID now? Keep reading to learn our view.
Avid Technology, Inc. (AVID) in Burlington, Mass., develops, markets, sells and supports software and integrated solutions for video and audio content creation, management, and distribution worldwide. AVID shares have gained 39.2% in price over the past year and 9.2% over the past six months to close yesterday's trading session at $29. However, the stock has slumped 11% year-to-date amid market volatility and a concomitant rout of the tech sector.
The company reported robust earnings and revenue growth in its most recent quarter. Solid growth in its subscription business and the growing storage and audio integrated solutions revenue and stable maintenance revenue helped the company improve profitability and free cash flow. It also surpassed its 2021 guidance for both subscription and maintenance revenue and total revenue and posted non-GAAP EPS towards the high end of guidance.
The company witnessed stable customer demand with the recovery of its end markets, benefiting its business and product segments. AVID plans to launch additional innovative subscription and cloud-based offerings this year and expects continued healthy end-market demand.
Here's what could shape AVID's performance in the near term:
Impressive Growth in its Last Reported Quarter
For its fiscal fourth quarter, ended Dec. 21, 2021, AVID's total revenue came in at $119.06 million, reflecting a 14.2% increase year-over-year, continuing the sustained growth trend with four consecutive quarters of year-over-year revenue growth. The increase was driven by its enterprise and creative subscription growth and demand for its integrated solutions.
Its subscription and maintenance revenue came in at $65.50 million, up 17.9% year-over-year. Its gross margin improved 310 basis points year-over-year to 65.8%. Also, adjusted EBITDA grew 15.3% from the prior-year quarter to $24.95 million. In addition, its non-GAAP net income stood at $20.87 million, reflecting a 37% increase year-over-year, while its non-GAAP EPS increased 39.4% year-over-year to $0.46. The revenue growth and an increased mix of higher-gross margin software subscription revenue and improving integrated solutions gross margin helped deliver significant bottom-line growth.
Higher-Than-Industry Profit Margins
AVID's 63.97% gross profit margin is 29.1% higher than the 49.54% industry average, while its 8.42% net income margin is 37.7% higher than the 6.11% industry average. Also, its 13.74% levered FCF margin is 34.6% higher than the 10.21% industry average.
Moreover, AVID's ROA and ROTC of 13.36% and 31.91%, respectively, are 247% and 539% higher than the industry averages.
Favorable Analysts' Expectation
Wall Street expects the company's revenue to come in at $102.61 million in the current quarter, ending March 31, 2022, indicating an 8.7% increase year-over-year. Also, its revenue is expected to increase 8.9% in the current year. In addition, the $0.34 consensus EPS estimate indicates a 21.4% increase from its year-ago value. AVID's EPS is expected to rise 24.6% in the current year. Furthermore, its EPS is expected to grow 15% per annum over the next five years.
POWR Ratings Show Promise
AVID has an overall B rating, which translates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a grade of A for Quality. Its higher-than-industry profit margins justify this grade.
AVID has a B grade for Growth, which is consistent with its stable rise in financials in the last reported quarter.
Among the 79 stocks in the Technology - Services industry, AVID is ranked #5.
Beyond what I have stated above, one can also view AVID's grades for Value, Sentiment, Momentum, and Stability here.
View the top-rated stocks in the Technology – Services industry here.
Although the global supply chain is expected to remain challenging, the stable demand for its integrated solutions should help drive growth. Also, the company is focusing on enhancing its offerings, refining market tactics, and improving customer experience capabilities. So given its healthy margins and stable financial footing, I think AVID could be poised for long-term growth and is worth adding to one's portfolio.
Note that AVID is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
How Does Avid Technology, Inc. (AVID) Stack Up Against its Peers?
AVID has an overall POWR Rating of B. However, one could also check out these other stocks within the Technology – Services industry with A (Strong Buy) rating: NetScout Systems, Inc. (NTCT), PC Connection, Inc. (CNXN), and Sanmina Corporation (SANM).
AVID shares were unchanged in premarket trading Wednesday. Year-to-date, AVID has declined -10.96%, versus a -9.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree's keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master's degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
Entrepreneur Editors' Picks
Tory Burch Built a Brand Around Empowering Women. Now Her Foundation Is Furthering Her Mission: 'How Do We as a Company Have a Positive Impact on Humanity?'
This Founder Had to Play College Basketball in Men's Shorts and Shoes, So She Launched an Athletic Clothing Company Named After the Now 50-Year-Old Title IX Act
Is Beyoncé's 'Break My Soul' the Theme Song of the Great Resignation?
You're Probably Falling for All of Amazon Prime Day's Psychological Sales Tactics. A Marketing Professor Reveals Them — and How You Can Actually Get the Best Deal.
Comedian Paul Virzi: 'If You're Not Authentic, You Have Nothing'
Struggling to Come Up With Creative Ideas? Try Doing This.
Picking a Winning Emerging Brand Is How You Get Rich in Franchising. Here's How to Spot One.