March 14, 2024

The augmented and virtual reality market is anticipated to expand annually by nearly 11%, potentially introducing new segments that could elevate sales. Despite indications that the company is undervalued, Immersion Corporation faces several obstacles. The company must validate its growth potential, though a favorable outcome in any ongoing litigation could uplift the share price.

The augmented and virtual reality market is expected to grow annually by nearly 11%, with the United States projected to be the largest revenue contributor.

Today’s discussion revolves around Immersion Corporation (NASDAQ:IMMR), a company that suffered from disappointing revenue results last quarter, reflecting a Total 1-Year Return of -4.72%. However, the company could benefit from prospective market opportunities.

The company has a “Hold” Quant rating and a “Strong Buy” recommendation from Wall Street analysts. I will conduct a peer analysis and delve into the company’s financial statements to establish a share price target and reasons why it could be a “Buy”.

Company Overview
Statista predicts that the dominant market segment will be AR software, though AR and VR hardware segments are expected to catch up soon. The revenue figures only represent B2C numbers, accounting for approximately 55% of the total market.

Immersion Corporation is a leading authority in haptic technologies, holding patents for a broad spectrum of touch-related technologies hardware and software. As haptic feedback is utilized in AR and VR hardware, the company may see an increase in product demand, further broadening applicable markets. With the growing popularity of AI +AR and AI +VR, revenues could see substantial CAGR in the coming years. Prophecy Market Insights forecasts that the haptic technology market will grow at a moderate CAGR of 7.5% until 2029.

Controversial Reputation
Immersion Corporation has earned a reputation as a “patent troll”, frequently suing companies for patent infringements. Current litigation includes cases against Meta Platforms, Valve Corporation, and Xiaomi Group. The company’s “targeted litigation strategy” was identified as a lever to drive shareholder value at the start of 2023. This strategy could yield positive results, as the company has had notable success in previous cases, such as the lawsuit against Sony.

Immersion (IMMR) could be a valuable addition to your portfolio, given the significant revision in the company’s earnings estimates. The stock has been gaining recently, and this trend may continue as the company’s earnings outlook continues to improve.

The upward trend in estimate revisions, resulting from increased analyst optimism about the company’s earnings prospects, should be reflected in the stock price. Research indicates a strong correlation between trends in earnings estimate revisions and short-term stock price movements. The Zacks Rank stock rating tool incorporates this insight.

The five-grade Zacks Rank system, ranging from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has a proven track record of outperformance, with Zacks #1 Ranked stocks yielding an average annual return of +25% since 2008.

Consensus earnings estimates for the next quarter and full year have significantly increased for Immersion, reflecting strong agreement among analysts in raising estimates.

Current-Quarter Estimate Revisions

The earnings estimate of $0.57 per share for the current quarter represents a change of +128% from the figure reported a year ago.

Over the last 30 days, the Zacks Consensus Estimate for Immersion has risen by 256.25% due to an increase in one estimate and no negative revisions.

Current-Year Estimate Revisions

For the full year, the company is projected to earn $1.15 per share, a year-over-year change of +10.58%.

There has been a positive trend in estimate revisions for the current year. Over the past month, one estimate has increased for Immersion with no negative revisions, pushing the consensus estimate 55.4% higher.

Favorable Zacks Rank

Thanks to encouraging estimate revisions, Immersion currently holds a Zacks Rank #1 (Strong Buy). The Zacks Rank is a reliable rating tool that enables investors to effectively utilize the power of earnings estimate revisions and make informed investment decisions.

Our research indicates that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Immersion shares have gained 17.4% over the past four weeks, suggesting that investors are banking on its impressive estimate revisions. Therefore, you might consider adding it to your portfolio immediately to capitalize on its earnings growth prospects.