Is American Virtual Cloud Technologies a Buy Under $1?
IT solutions provider American Virtual Cloud Technologies (AVCT) became a hot meme stock candidate in December 2021. However, the stock has declined significantly in price this year. So, considering the...
IT solutions provider American Virtual Cloud Technologies (AVCT) became a hot meme stock candidate in December 2021. However, the stock has declined significantly in price this year. So, considering the already volatile market environment, is it worth betting on the risky penny stock now? Please continue reading.
Information technology (IT) solutions provider American Virtual Cloud Technologies, Inc. (AVCT) in Atlanta, Ga., focuses on offering a range of services, including unified cloud communications, managed services, cybersecurity, and enhanced connectivity. The company's subsidiary, Kandy Communications LLC, has been expanding its Public Switched Telephone Network (PSTN) replacement services internationally, bringing the total number of countries serviced by Kandy's voice network to 40. Furthermore, Kandy offers Inbound DID services in 87 countries and Toll-free services in 105 countries.
In January, AVCT announced its agreement to sell its Computex Technology Group business to Calian Group Ltd., with the goal of transitioning to a pure-play cloud communications and collaboration company, focusing primarily on the Kandy platform. The company closed the sale of the group this month. Also, in February AVCT entered a securities purchase agreement to sell equity securities to an institutional investor. The company intends to use the proceeds from the security sale and the divestiture of its Computex business to retire outstanding debt.
AVCT's shares have slumped 83.5% in price over the past year and 61.5% year-to-date to close yesterday's trading session at $0.94. The stock is currently trading below its 50-day and 200-day moving averages.
Here is what could shape AVCT's performance in the near term:
Meme Stock Candidate
AVCT has been one of the most discussed names on the popular Reddit forum r/shortsqueeze over the past 100 days. The stock gained traction among meme traders last December due to its elevated short interest, resulting in AVCT's stock skyrocketing in price. On December 27, the trading volume for a single session was about twice as large as AVCT's total market cap. With increasing meme stock interest among retail investors, AVCT might spike again. However, considering its high beta of 1.15, it could be a turbulent ride.
Bleak Bottom Line
AVCT's total revenue for its last reported quarter, ending Sept. 30, 2021, increased 5.9% year-over-year to $27.51 million. However, its gross profit declined 3.9% from its year-ago value to $7.23 million, while its loss from operations stood at $37.88 million, up 1,474.3% year-over-year. Also, its net loss and net loss per share came in at $37.32 million and $1.20, respectively, versus the prior-year quarter's value of $5.62 million and $0.29. Furthermore, the company's trailing-12-month net income and EPS stood at a negative $99.46 million and $4.36, respectively.
Unfavorable POWR Ratings
AVCT has an overall D rating, which translates to Sell 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 D grade for Stability, consistent with its high beta.
AVCT has a C grade for Growth. Its mixed financial performance in its last reported quarter justifies this grade.
Of the 81 stocks in the D-rated Technology - Services industry, AVCT is ranked #73.
Beyond what I have stated above, one can also view AVCT's grades for Sentiment, Value, Momentum, and Quality here.
View the top-rated stocks in the Technology – Services industry here.
The company's transition to a pure-play cloud communications and collaboration company is expected to pay off in the coming months. Furthermore, the renewed meme traders' interest could help the company register significant gains, but it is likely to be a wild ride. Thus, amid the already volatile current market condition and considering its bleak bottom line, we think it could be best to avoid the risky bet at this time.
How Does American Virtual Cloud Technologies, Inc. (AVCT) Stack Up Against its Peers?
While AVCT has an overall POWR Rating of D, one might want to consider investing in the following Technology – Services stocks with an A (Strong Buy) rating: NetScout Systems, Inc. (NTCT), Information Services Group, Inc. (III), and PC Connection, Inc. (CNXN).
What To Do Next?
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AVCT shares rose $0.04 (+4.26%) in premarket trading Friday. Year-to-date, AVCT has declined -61.32%, versus a -4.61% 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.
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