KOPN Stock Forecast: Technological Innovation Under the Wing of Government Defense Contracts

Sergey Okun  This KOPN Stock Forecast article was written by Sergey Okun – Financial Analyst, I Know First.

Highlights:

  • Since January 2021, the company’s stock has grown by 280%
  • Expected that the microdisplay market will grow with a CAGR of over 27-39%
  • DCF support around $10 or over 11% upside for KOPN stock for the coming year
(Source: flickr.com)

Overview

Kopin Corporation is a leading developer and provider of innovative display and optical technologies sold as critical components and subassemblies for military, industrial and consumer products. Kopin’s technology portfolio includes ultra-small Active Matrix Liquid Crystal displays (AMLCD), Liquid Crystal on Silicon (LCOS) displays and Organic Light Emitting Diode (OLED) displays, a variety of optics, and low-power ASICs. Kopin Corporation was incorporated in Delaware in 1984. The common stock is traded on the Nasdaq Capital Market under the symbol “KOPN”.

Development of Innovative Potential Under Cover of the Defense Contracts

(Source: flickr.com)

Kopin Corporation can be classified as a growing company. The company has not paid cash dividends in the past and does not plan to pay cash dividends for the foreseeable future. The company plans to retain the future profit for the business development. Kopin’s revenue significantly increased recently – by 35.9% in 2020 due to an increase in shipments of products into the Family of Weapon Sights Individual program, the Joint Strike Fighter program, and completion of performance obligations on funded US defense programs.

(Figure 1 – KOPN’s Revenue Structure)

The microdisplay market is a market with huge growth potential. Different market researches assume that the microdisplay market could grow with a CAGR of 27.69%, 29.20%, and 38.5%. Kopin offers transmissive active-matrix liquid crystal displays (AMLCDs), reflective liquid crystal on silicon (LCOS) displays, and organic light-emitting diode (OLED). Primary development efforts are focused on AMLCD display subassemblies for defense and industrial applications and OLED display components for defense, industrial, and consumer applications. Kopin prefers to enter into development agreements with the goal of successfully developing a customer product and then winning the production orders for such products once a design is complete and tested. Such a development process typically adds to Kopin’s knowledge base and expertise, which increases the company’s competitiveness. Currently, the company is designs for the Family Weapon Sight (“FWS”) Individual program and the Joint Strike Fighter (F-35) jet fighter. Also, the company participates in defense programs related to avionic helmets, armored vehicles, and soldier rifle scopes. Now KOPN trades on high historical valuation ratios that underlined market expectation that the company will be able to realize prospects for market growth by utilizing rich experience and accumulated knowledge. Average annual values of P/S and P/B are 4.6, and 2.1 respectively for the period 2006 – 2020; median values of P/S and P/B are 3.4 and 1.7 respectively for the period 2006 – 2020.

(Figure – 2 The Dynamic of KOPN’s Price Ratios)

Kopin’s product strategy is to enter into funded development programs with US defense prime contractors to invent, develop, manufacture, and sell (or license) leading-edge critical technology and microdisplay components and subassemblies. Under these contracts, the US Government funds all or a portion of the company’s efforts to develop products. Such a strategy enables the company to attract additional funds for research and development. But a decline in the US government defense budget, changes in spending, or budgetary priorities can have a significant negative impact on Kopin’s financial result.

Despite that, the company suffered net losses of $4.4 mln. in 2020, the company has enough cash and equivalents in the amount of $20.7 mln. to offset the possible future losses without causing damage to research and production activities. The company has a positive dynamic of operating margin and net income that indicates increasing in business efficiency with positive numbers in the 4Q2020. The current debt to equity ratio is 0.06 which means that the company would be able to get additional credit finance if necessary.

(Figure 3 – KOPN’s Financial Results)

Kopin Corporation has made an agreement with Shearwater Research about incorporating CyberDisplay® WQVGA LVS display/backlight module and A230 Driver IC into the Shearwater wearable NERD 2 diving computer. Shearwater’s NERD 2 is the market leading near-to-eye display for underwater divers, providing constant availability of critical dive information such as depth, dive time, compass and breathable gas levels without the need for stopping to check gauges.

DCF Estimates $10 KOPN Stock Forecast

The DCF analysis shows that KOPN’s target stock price should be around $10 in the coming year. This expected share price makes some 11% upside from the price on April 27th. The below forecast is based on average data from previous years, the direction of the company’s policy, and macroeconomic expectations.

(Figure 4 – DCF Model of KOPN’s stock)

I have made the next assumptions and estimations for this DCF:

  • the effective tax rate to be 14.6%. Kopin has not had a positive Pre-Tax Income since 2010, so I estimated Kopin’s effective tax rate as the average effective tax rate within O2Micro International Limited (“OIIM”), Himax Technologies (“HIMX”), and Garmin Ltd. (“GRMN”)
  • the market Beta and the perpetuity growth rate (g) to be 2.0 and 6.0%, respectively
  • the risk-free rate and the risk premium to be equal to 1.79% and 5.6%, respectively

I made a sensitivity analysis of KOPN based on WACC (in brackets are written the value of Market Beta) and growth:

(Figure 5 – Sensitivity Analysis of KOPN’s stock)

Do Technical Indicators Support Bullish KOPN Stock Forecast in 2021?

(Source: Yahoo Finance)

As we can see in the chart, currently KOPN’s stock price is flat with support and resistance levels of $7.4 and $11.25, respectively. On May 4th, 2021, Kopin will report the first quarter of FY2021 that will determine the future stock price dynamic. Previously, Kopin has beat market earning expectations and I am quite confident that Kopin can do it again.

(Source: Yahoo Finance)

Conclusion

I take a buy-side on KOPN stock because the stock holds a positive DCF forecast resulting in a $10 target price, i.e., around 11% upside potential. The company has a portfolio of products and an accumulated knowledge base, which should allow leveraging the high growth potential of the microdisplay market with a CAGR of 27-39%.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the KOPN stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success with KOPN Stock Forecast

I Know First has been bullish on the KOPN stock forecast in the past. On January 21st, 2021 the I Know First algorithm issued a forecast for KOPN stock price and recommended KOPN as one of the best consumer stocks to buy. The AI-driven KOPN stock prediction was successful on a 3-months time horizon resulting in more than 112.46%.

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Please note-for trading decisions use the most recent forecast.