Top broker rates this ASX media device company a buy

A broker has rated this media device company a buy with a price target 18% above its current share price.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Ord Minnett has rated Atomos Limited (ASX: AMS) shares a buy with a price target of $1.75. Atomos shares are currently trading at $1.41. Atomos is a media device company in the consumer discretionary sector that produces monitor-recorders used in video production.  

Headquartered in Melbourne, Atomos was founded in 2010 and listed on the ASX in late 2018, issuing shares at 41 cents apiece. In FY19, the company reported turnover of $53.7 million, $11.5 million ahead of prospectus forecast and $18.1 million up on the previous year. Earnings before interest tax depreciation and amortisation (EBITDA) were $1.78 million, $1.49 million ahead of prospectus forecasts and $1.56 million up on the previous year. 

The Atomos product range

Atomos' monitors transfer images captured by cameras to their hard drive, which the enhances the quality of the video through increased data rates, allowing standard definition cameras to be enhanced into high resolution systems. The monitor can be added to phones, tablets, or video recorders and used to view, play, and edit video. 

Atomos' range covers the gamut of production needs from photography and social content to pro video, television, and cinema content. Atomos has developed strategic relationships with other tech players within the content creation ecosystem including Apple, Adobe, Sony, Canon, Panasonic and Nikon. The technology works with both that of camera manufacturers and post-production software providers, creating a seamless workflow for users. 

The addressable market

Atomos is well positioned to take advantage of the exponential global growth in video content creation, a trend driven by social media and YouTube. It was estimated there were over 900 million content creators in 2018, a number that grew 23% annually between 2012 and 2016.  Atomos' focus is on expanding its footprint in the growing Social and Entertainment video content markets and building on its success in the Pro market. The company has experienced significant growth in these markets in the past several years. 

In September, Atmos launched its Neon range of products, targeted at the Cinema market, which are expected to drive strong sales growth. Demand for high quality content has grown alongside the growth in streaming services. Netflix, Amazon, and Apple are expected to grow their combined spend on original content from US$5 billion in 2017 to over US$23 billion in 2022. 

The outlook

Atomos will benefit from its strategic relationships with other tech providers in the content creation ecosystem going forward – Atomos is one of just two companies globally licensed to use Apple's updated recording format, 'ProRes RAW'. ProRes RAW is one of the most popular codecs in professional post production, strengthening Atomos' competitive position. Atomos products can also link to the iPhone, allowing users to record and monitor on their phone screen. 

Atomos has invested heavily in research and development, spending a total of $7.2 million on R&D in FY19. Ord Minnett is predicting this investment will pay off, forecasting a compound annual growth rate of 22% for revenue between FY19–25, 50% for EBITDA, and 72% for NPAT. The broker predicts Atomos will record NPAT of $3.6 million in FY20, growing to $23.4 million by FY25. 

Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

More on Share Market News

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

3 small-cap ASX healthcare shares 'with strong prospects'

Fund manager IML discusses why these 3 ASX healthcare shares are likely to rise in value.

Read more »

Magnifying glass on a rising interest rate graph.
Share Market News

Will the RBA finally cut interest rates next week?

Let's see what economists are saying about the central bank's meeting.

Read more »

A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors endured a rough Friday to close the trading week today.

Read more »

a man wearing old fashioned aviator cap and goggles emerges from the top of a cannon pointed towards the sky. He is holding a phone and taking a selfie.
Broker Notes

7 ASX All Ords shares elevated to 'strong buy' status in October

The brokers turned bullish on these ASX companies last month.

Read more »

A businessman compares the growth trajectory of property versus shares.
Share Market News

How ASX shares vs. property performed in October

The national home value rose for the 21st consecutive month while the ASX 200 dipped.

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

The worst 3 ASX 200 stocks to buy and hold in October unmasked

You would have done well to avoid these three ASX 200 stocks in October.

Read more »

A female Woolworths customer leans on her shopping trolley as she rests her chin in her hand thinking about what to buy for dinner while also wondering why the Woolworths share price isn't doing as well as Coles recently
52-Week Lows

Why is the Woolworths share price at its lowest point since 2020?

We haven't seen Woolies shares this low since COVID.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why AFT, Amcor, Corporate Travel, and Macquarie shares are falling today

These shares are ending the week in the red. But why?

Read more »