Immersion Corporation IMMR shares have plunged 28.3% in the past six months, prompting investors to question whether this dip presents a buying opportunity or a deeper concern. In stark contrast, the S&P 500 and the Technology Select Sector SPDR Fund XLK returned 4.9% and 3.5%, respectively. Does the drop in Immersion’s share price reflect underlying weaknesses, or is it a temporary pullback caused by external factors?
Reason Behind IMMR Stock’s Decline
The pullback in Immersion shares has been primarily due to profit booking by investors. IMMR stock hit its 52-week high of $13.94 on July 29, 2024, which prompted investors to lock in gains. This created selling pressure, which compounded the downturn.
Moreover, the stock’s premium valuation raised concerns about its near-term growth potential, prompting some investors to reassess their positions. Despite the plunge, Immersion shares are trading at a lofty valuation multiple relative to its industry peers. Currently, it trades at a forward 12-month price-to-sales multiple of 6.03x, above the industry average of 0.67x.
Immersion Six Months Price Performance Chart
Image Source: Zacks Investment Research
Nevertheless, the fall in Immersion’s share price does not signal weakening fundamentals. In the third quarter of 2024, IMMR’s revenues jumped to $616.2 million from $7 million in the year-ago quarter. Its non-GAAP EPS of $1.22 for the third quarter signifies a robust improvement from the year-ago quarter’s earnings of 26 cents.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Immersion’s Industry Leadership and Growth Potential
IMMR is a trailblazer in the flourishing haptic technology space, which provides tactile feedback for several industries, such as gaming, automotive and virtual reality (VR). The demand for haptic technology is growing, and IMMR’s strong intellectual property portfolio — backed by several patents — puts it in a promising position to gain from this growth.
IMMR’s technology is already integrated into more than three billion devices globally. Its impressive client base includes more than 150 licensed customers. Immersion’s strong market presence solidifies its position as a key player in the haptic space.
Immersion’s partnerships are a major factor driving its market success. Its collaboration with Sony Group Corporation SONY for the PlayStation 5’s DualSense controller has enhanced gaming experiences, highlighting the growing importance of haptic feedback in the entertainment sector. Licensing agreements with Samsung and Meta Platforms, Inc. META extend Immersion’s reach into VR, gaming and mobile markets.
Samsung’s renewed license agreement with Immersion allows its affiliates to continue utilizing Immersion’s patents. Meta Platforms has signed a deal to incorporate Immersion’s technology into its hardware, software, VR and gaming products. These partnerships not only provide Immersion with a steady revenue stream but also validate the company’s technology, offering long-term growth potential.
Conclusion: Hold Immersion Stock for Now
The pullback in Immersion’s stock price does not reflect that the company has weak fundamentals. Immersion’s leadership in the haptic space provides a solid growth trajectory in the long term. However, its stretched valuation warrants a caution.
For long-term investors, these fundamentals justify holding the stock despite its premium valuation. Immersion carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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