Why is Audinate outperforming other ASX tech shares today?

A businessman in a suit wears a medal around his neck and raises a fist in victory surrounded by two other businessmen in suits facing the other direction to him.A businessman in a suit wears a medal around his neck and raises a fist in victory surrounded by two other businessmen in suits facing the other direction to him.

ASX tech shares are deep in the red today but the Audinate Group Ltd (ASX: AD8) is a notable exception.

Shares in the audio/video networking group are rallying 2% during lunch time trade to a three-month high of $7.18.

In contrast, the S&P/ASX 200 Index (ASX: XJO) tumbled 1% as other ASX tech names led the loss. The WiseTech Global Ltd (ASX: WTC) share price lost 4%, the Block Inc CDI (ASX: SQ2) surrendered 2% and Altium Limited (ASX: ALU) share price declined 1%.

Audinate share price jumps as ASX tech shares tumble

The threat of an interest rate hike by the Reserve Bank of Australia later this afternoon may be weighing on sentiment. But the Audinate share price is bucking the trend as Morgan Stanley reacted to its trading update yesterday.

The market was a little unsure what to make of the company’s guidance that FY22 revenue would exceed US$30 million as its shares bounced between gains and losses on Monday.

But there’s little doubt in Morgan Stanley’s mind that Audinate is a buy as the broker reiterated its “overweight” call on the shares.

Record quarterly sales

Morgan Stanley noted that at US$30 million, Q4 FY22 sales would have jumped 26% to US$8.7 million. That far exceeds consensus forecast of $7.2 million for the quarter and would mark a new record for Audinate.

The previous quarterly sales peak was Q1 FY 22 when sales increased 14.5% to US$7.6 million.

The broker added:

We noted 3Q22gave confidence that AD8’s revenue had troughed on improving supply and product mix, but we underestimated extent of 4Q rebound. Today’s guidance should also alleviate any investor concerns on demand – industry demand remains elevated, in part driven by a rebound in live [performances and events].

Drivers behind the sales rebound

One of the factors that drove the better-than-expected recovery in Q4 sales is Audinate’s success in aggregating customer demand and lobbying chip manufacturers for supply. This allowed the company to ramp up production of its equipment from March onwards.

Audinate was also making headway in switching customers to its software solutions from its hardware offering. This not only overcomes the global chip supply crunch but will help group margins.

The launch of new products to replace existing hardware is the third factor that contributed to the rebound in sales.

What is the Audinate share price worth?

Further, the company’s strong balance sheet should also help support the shares. It has enough cash for more than four years, according to Morgan Stanley.

The broker’s 12-month price target on the Audinate share price is $10.50 a share.  

The post Why is Audinate outperforming other ASX tech shares today? appeared first on The Motley Fool Australia.

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Motley Fool contributor Brendon Lau has positions in AUDINATEGL FPO and Block, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended AUDINATEGL FPO, Altium, Block, Inc., and WiseTech Global. The Motley Fool Australia has positions in and has recommended AUDINATEGL FPO, Block, Inc., and WiseTech Global. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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