Is Nxt-ID Inc. (NXTD) A Good Buy the Dip Stock?

Incorporated in 2012, Nxt-ID (NXTD) is a Connecticut-based technology  company that provides solutions and services for payments, the Internet of Things (IoT), and healthcare applications. The company also owns a subsidiary, known as LogicMark LLC, that develops and sells monitored and non-monitored personal emergency response systems. 

Year-to-Date (YTD), shares of Nxt-ID have dropped over 75% and are currently trading at $3.13. In addition, NXTD stock has lost about 30% of its value over the past month. 

In this article, I’ll look at the company’s recent news and fundamentals to determine whether it’s worthwhile to buy the dip. 

Recent News

On October 15th, the company’s shareholders approved two reverse stock split offers related to NXTD’s common shares and Series C preferred stock. Under the terms of the reverse split, shareholders will receive one share of the company’s new stock for every ten shares that they own. This move will keep the company’s listing on the Nasdaq. While the stock has seen some short-term bullish momentum after the reverse stock split approval, it doesn’t mean any fundamental improvement, which is why NXTD stock may continue its bearish trend.

On September 15th, the company raised additional funding on the open market, selling 27.9 million common shares. The net proceeds from the public offering are expected to be $12.5 million. The company is projected to spend new funds on R&D, working capital, and debt reduction. That’s a piece of bad news as it signalizes the company’s inability to generate enough money to fund its corporate expenses. 

Questionable Balance Sheet 

Let’s take a look at the most recent NXTD’s 10-Q report, which was released on August 16th. In Q2, the company had seen a 12% year-over-year increase in its revenues, which stood at $2.78 million. However, its gross profit remained flat at $1.82 million because of a decrease in gross profit margin by 754 bps to 65.4%. In addition, the company’s operating expenses grew 6% to $2.03 million, translating into a 104.9% operating loss increase to $211,672 as of 2Q2021.

Meanwhile, the company’s revenue decreased 19.3% to $5.22 million during the first half of 2021 due to lower LogicMark sales caused by the COVID-19 pandemic. The company had also seen a 19% growth in total operating expenses, leading to an operating loss of $994,562 compared to an operating income of $936,080 in 1H2020. 

The company’s net cash position stood at $2.04 million in the second quarter of 2021. Cash used to run the company’s operations during the first half of 2021 was roughly $1.72 million versus a positive cash flow from operations of $609,994 in 1H2020. However, with net proceeds from the public offering, I would expect the cash on hand to be sufficient for the next 12 months. 

Let’s take a look at EV/Sales and Price/Book multiples for NXTD stock. When it comes to EV/Sales TTM, the stock’s 3.32x is 26.40% lower than the 4.52x sector median. Also, the NXTD TTM P/B multiple of 1.21x looks undervalued compared to the sector’s median P/B ratio of 4.95x. However, I believe that the company’s discounted valuation metrics cannot justify its poor fundamentals. 

The Bottom Line  

I think that NXTD stock should be avoided for now. Although the company just went through a reverse split, its weak fundamentals remain unchanged. For instance, the modest revenue growth in the second quarter was offset by the declining gross profit margin, thus affecting the company’s bottom line numbers.

In addition, the absence of any product-related news, increasing cash burn rate, along with its deteriorating financials, could create selling pressure on the stock in the medium term.