One expert is bullish on the Audinate Group Ltd (ASX: AD8) share price, flagging a bright future for the stock.
The digital audio networking technology provider's shares have fallen 15.3% year to date to trade at $7.30 at the time of writing.
That's despite the release of the company's seemingly strong first-half earnings yesterday. At least the Audinate share price isn't alone in its tumble.
The S&P/ASX All Technology Index (ASX: XTX) has also slumped 19.9% since the start of 2022, likely dragging the All Ordinaries Index (ASX: XAO) audio tech stock down with it. For context, the All Ords has gained 4.9% in that time.
Fortunately, according to Shaw and Partners portfolio manager and Market Matters author and portfolio manager James Gerrish, the drop has left Audinate with a significant upside.
Here's why this expert thinks its Audinate shares are a buy
The professional investor reportedly told Livewire he is content with the company's results for the first half and believes it has room to grow.
Gerrish noted some of his managed portfolios include Audinate shares already, telling the publication, "we own it. If we didn't own it, we'd be buying it".
"[The company has] a clear competitive advantage in what they do … It's got the ability now to leverage its position into other areas like video. It's growing its top line strongly. And it's handled a pretty challenging period over the past 12 to 18 months."
However, Gerrish believes the stock's current dip is justified. He said tech sell-off aside, the business is facing supply chain issues that could restrict its future pace of growth.
The expert said the stock "probably deserves" to have fallen from around $11 – near its 52-week high – to around $7.60 – where it opened on Monday.
"If I look at the short term, [the stock's tumble is] probably the right reaction because that whole area of the market has been sold down," Gerrish told the publication. He continued:
But it's the clear global leader in audio networking. It's got 13 times the market adoption of its nearest competitor …
They're doing all the things that you'd want them to be doing. They're increasing headcount to go and capture growth.
They've got cash on their balance sheet of $60 million. So, they're well capitalised, that's more than 10% of their market cap …
However, the company's projected headcount growth – expected to reach 185 over financial year 2022, representing a 35% increase – might have shocked the market yesterday.
It will likely lead to extra costs. Particularly, Gerrish says, given the current skills shortage.
"[But] if you take a medium-term view, so out over the next two to three years, I think this is a clear buying opportunity," Gerrish summarised.
The expert also noted the stock is in its "value range", with Shaw and Partners slapping Audinate shares with a $12 price target. That's 62% higher than where the stock is currently trading.
Finally, speaking on Audinate's results, Gerrish was quoted as saying:
Loss this half is $2.1 million. It is up more than 70% and it was bigger than what we expected. We expected them to be making a slight profit of about a million dollars …
However, you're not holding this company because it's losing $2 million or $1 million, or it's making a million bucks. You want them to be scaling for future growth. You want them to be taking advantage of the market opportunity they've got, which is having such a dominant position in that audio networking space. And then leveraging that into other areas.
