The virtual reality and augmented reality markets are growing at a rapid pace and are projected to reach $120 billion by 2020, according to digi-capital.com. The augmented reality market could account for $90 billion, leaving the remaining $30 billion for virtual reality. As per the latest research from Greenlight VR, customer interest in VR is inching higher. Apart from gaming, users are likely to use VR for entertainment, education, travel, events, etc.
Although there are several companies that are betting big on virtual reality, Himax Technologies (HIMX, Financial) is one of my favorite picks because the company has been working on this particular technology for quite some time. It was almost a flat year for the company in 2015, but it has performed well this year, beating top-line and bottom-line estimates for the past three quarters.
In the third quarter of 2016, the company reported earnings per share of 12 cents, surpassing estimates by two cents. On the other hand, revenue came in at $218.08 million, $1.73 million more than the estimates and signifying an increase of almost 32% year over year.
The company’s generally accepted accounting principles operating margin in the third quarter was 7%, a surge of 8.5% year over year. However, the GAAP operating income declined 30% successively, but surged 721.5% year over year. The sequential drop was mainly an outcome of a higher restricted stock units expense.
The company’s great performance was due to the robust growth momentum across all major product lines, which was driven by large panel driver IC sales, and profited from its leading market share in China as well as in 4K TV.
Moreover, sturdy smartphone driver IC sales as well as improved augmented and virtual reality related business from prominent U.S. consumers accounts for another growth driver.
On the other hand, the company managed to keep its margins strong in 2016 due to a more favorable product mix in small and medium-sized driver ICs, definite engineering fees from AR-VR associated projects, and escalated LCOS and WLO shipments.
Summing up
Virtual reality is projected to move upward in the imminent years. Himax Technologies looks like a great option for investors wanting to benefit from the growth in this market. The products manufactured by Himax are being used by Microsoft (MSFT, Financial), Facebook (FB, Financial), Lenovo (HKSE:00992, Financial) and several others.
The stock currently trades at 24 times earnings, slightly lower than the industry average, which suggests the stock is cheap at its present level compared to its rivals. The stock is down almost 50% from its all-time high and it is the best time for investors to buy Himax.
Disclosure: No position in the stock in this article.
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