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Invest in London Alternative Investment Market (AIM) offers me the opportunity to get some interesting small cap stocks below the rader. Corporate broker Cenkos believes that an AIM share should be valued as a tech unicorn (worth £1bn or more). That would represent an advantage of around 250% of his current valuation.
on a mission
That action is based in Australia. seeing machines (LSE: SEE), which tries to reduce the number of deaths from traffic accidents. This figure is currently more than 1.3 million each year, worldwide. A significant proportion of these accidents are due to driver fatigue or distraction.
The company’s AI-powered driver monitoring system (DMS) is embedded in vehicles and aircraft to detect drowsiness in human drivers and pilots. At the end of June last year there were more than 447,000 cars on the roads enabled with its DMS technology. And the company says it has detected more than 3.6 million driver events related to fatigue and distraction to date.
The company’s Guardian technology has been used within commercial truck and bus fleets around the world since 2016. This system monitors the driver’s facial position and eye movements to determine if they are alert and looking out the front windshield. If the system detects that the driver is not alert, an alert will sound or the interior lights will flash. You can even apply the brakes if the driver isn’t responding.
The opportunity
Guardian is already used in 26 countries. It is connected to a 24/7 monitoring center in the cloud that allows fleet owners customizable analysis and intervention options.
By 2030, it will be mandatory to integrate DMS technology in all new cars in the US, EU and China. This makes the opportunity extremely great.
In October, the company signed an agreement with the auto parts supplier great international incorporate a camera in the rear-view mirrors to monitor both the driver and the occupants of the vehicles.
And just today, Seeing Machines announced a non-exclusive distribution agreement with Mobileye. Under the agreement, Guardian will incorporate Mobileye’s suite of advanced driver assistance systems to alert drivers to a wide range of potentially dangerous situations. The companies will jointly market the combined offering to transportation and logistics customers around the world.
stocks and finance
At 7 pence a share, the company today has a market capitalization of £290 million. The stock is down 21% in the past year.
This lackluster performance is likely related to the company, which reports in Australian dollars (A$), posting ever-increasing losses. For the full year to June 2022, it generated revenue of A$54.4 million. That was 15% year-over-year growth, despite being hit by flex chain issues. However, the loss for the period ballooned to A$25.3 million, an increase of 45% over 2021.
This gives the stock a price-to-sales (P/S) ratio of around nine, which is very expensive. The company is not expected to be profitable for another couple of years. So one risk is shareholder dilution as it raises more cash. Otherwise, it will need to manage its cash position of A$59 million (as of June 2022) prudently.
Overall, I like the long-term market opportunity here, especially as DMS becomes a mandatory safety feature on all vehicles. But I won’t add to my small stock position until I see evidence of re-accelerating selling and narrowing losses.
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