One of the worst performers on the ASX on Wednesday was the Audio Pixels Holdings Ltd (ASX: AKP) share price.
The digital speaker development company’s shares finished the day down 17% to $14.32.
Why were Audio Pixels’ shares crushed?
Investors have been heading to the exits in their droves after Audio Pixels provided its fourth digital speaker development update in two months. And as you might have guessed from the share price reaction, it was yet another disappointing update.
According to the release, the company has received the wafers for the speaker that have undergone various optimisation techniques for the final steps of fabrication.
However, while significant improvements are evident, at the time of the announcement the “wafers received have yet to reach the qualitative levels that are required for the company to play complex music at the anticipated sound pressure levels.”
This news has overshadowed the apparent progress made by the wafers in validating most of the critical aspects of the device including the production of sequential tones and scans of frequencies throughout the audible range.
Despite this sizeable share price decline, which means its shares are now down 45% from their 52-week high, Audio Pixels still has a lofty market capitalisation of $385 million.
Should you buy the dip?
No. Audio Pixels was founded in 2006 and has been working on this speaker for years with little to show for it.
And while there is potentially a market for the product, until the technology has been proven I would stay well away from the company as it burns through its cash.
At the end of the March quarter the company had just under $4.4 million in cash and cash equivalents and an expected cash outflow of just over $1.4 million in the June quarter.
I suspect this means that the company will need to tap the markets for funds within the next three months or so. And given the growing scepticism over the company bringing its product to the market in the near future, it may have to raise money at a heavily discounted price. This could drag its shares even lower.
Alternatively, this medtech company could be a real star of the future.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium and Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.