Why is Audinate outperforming other ASX tech shares today?

The audio/video networking group is bucking the trend on Tuesday.

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Key points

  • The Audinate share price is bucking the sell-off in the ASX tech sector today
  • The shares jumped after Morgan Stanley reiterated its “overweight” recommendation following the company’s trading update yesterday
  • The broker noted that Q4 FY22 sales have surpassed consensus expectations and reached a new record high

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 1.85% during late afternoon trade to a three-month high of $7.17, having earlier gone as high as $7.28.

In contrast, the S&P/ASX 200 Index (ASX: XJO) is tumbling 1.4% as other ASX tech names lead the loss. The WiseTech Global Ltd (ASX: WTC) share price is down 4.94%, the Block Inc (ASX: SQ2) share price is sinking 2.85% and Altium Limited (ASX: ALU) shares are falling 2.4%.

Audinate share price jumps as ASX tech shares tumble

The interest rate hike by the Reserve Bank of Australia may be weighing on investor sentiment. But the Audinate share price is bucking the trend as Morgan Stanley reacted to the company’s 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 FY22 when sales increased 14.5% to US$7.6 million.

The broker added:

We noted 3Q22 gave 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 are Audinate shares 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.  

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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