Immersion shares still immune to market turmoil

Immersion is a technology company listed on the NASDAQ index for more than 20 years, whose domain is still niche haptic technology. The company has more than 3,500 patents around haptics, which it combines with VR technology. Some of the patents have already been granted to the company, while others are still pending approval. The patents enable the transfer of touch at a distance, and the company has a chance to be appreciated in the long term in the face of the Metaverse trend gaining popularity:

• The company was built by inventor and VR technology pioneer Louis Rosenberg. The company's stock price has failed to break through the record valuations of the 'dot-com' bubble period. Currently, the company is focused on protecting its own intellectual property, creating more patents and establishing agreements with technology and device suppliers. On May 31 of this year, the company received one of the key patents it had been waiting for since February 2020: 'Systems and methods for providing haptic feedback for remote interactions'. In practice it means transferring the sense of touch without physical interaction between users;
• On August 3, the company announced a new partnership to provide technology for ELAN, a company that manufactures haptic touchpads called Smart Haptic Pad. Immersion CEO Francis Jose pointed out that haptics fully integrated into Windows 11 is powerful for building better hardware user experience (UX) and allows building thinner devices. ELAN CEO Yoe Yeh commented on the collaboration, emphasizing the value of innovating so-called haptic feedback, which is another element in the ladder of technological innovation;
• In June of this year, among other things, the company initiated a lawsuit against Mark Zuckerberg's company Meta Platforms, which it accused of stealing 6 patents. Meta is currently going through a period of turmoil caused also by the action of the Federal Trade Commission, which is stopping the company from monopolizing the VR technology market;
• The business based on the sale of intellectual value (patents) is characterized by relatively high margins compared to other business models in the technology industry. In the first quarter of the year, the company's net margin was nearly 44%, which is better than giants like Apple and Microsoft, although the scale is obviously incomparable. By comparison, last quarter's net margin for Apple stock was 25%, for Microsoft around 36%;
• In 2021, Immersion's net margin was 34.29% (Q4), 52.78% (Q3), 48.65% (Q2) and 37.5% (Q1), respectively, giving an average of around 43%. By building the business around patents, the company is not directly exposed to supply-chain risks, although the limited availability of semiconductors may inhibit the development of new technologies. The challenge for the company will be to maintain such high margins and, above all, to increase revenues;
• The positive scenario for Immersion is based on several assumptions which are the growth in popularity of haptic technology (simulators, medicine, industrial manufacturing, among others) and the growth of applications and games based on digital worlds, whose participants will interact in ever deeper, immersive ways. The ultimate goal of building digital worlds is to enable the experience of all the senses in a virtual world, which is not possible without the involvement of haptics and devices like haptic gloves, among others. Going forward, Metaverse may prove to be a catalyst for growth for the company. BlackRock fund analysts in a special report 'Step into the Metaverse' indicated that building advanced digital worlds remains only a matter of time;
• Immersion's success will largely depend on the effectiveness of intellectual property protection and the demand for haptic technology. The company's shares may still be perceived as riskier due to historically frequent price fluctuations and low capitalization. At the same time, the outlook for haptics is improving, and the Metaverse can make the case that if the company is well run - it could be in a very different place in a few years.

Immersion (IMMR.US) stock chart, D1 interval. Immersion shares have gained nearly 35% since the mid-February 2022 price lows. The stock has behaved significantly better than the S&P500 index, which has been losing at the time. The company can be seen as potentially attractive to fundamental investors in view of its lack of debt and price-to-book ratio of 1.39 versus an average around 5.07 for the NASDAQ index. The price-to-earnings ratio for Immersion is 12.15 which also 'beats' the NASDAQ average of 23.25. Against software industry competitors, Immersion's stock could also be seen as attractively valued. The price-to-book value for both 'competing' companies Synaptics and CoreLogic is 5.10 and 7.79, respectively, with price-to-earnings ratios of 16.05 and 19.08. However Immersion Corp. is the only company operating in the haptic technology sector exclusively. On February 23, the company approved a $30 million share buyback program. The Immersion market capitalization is around $200 million, which makes Immersion's shares still risky and may be characterized by high volatility depending on market circumstances. Source: xStation5