During the lightning round of the September 30 episode of Mad Money, a caller sought Jim Cramer’s opinion of POET Technologies Inc. (NASDAQ:POET), and he commented:
It’s a kind of a dead poet society over there. I’m not recommending stocks that are losing money. I can’t.
During the April 21 episode, Cramer said that its financials make it look “more of a science project than a business.”
Revenue Growth And AI Optical Technology Development
POET Technologies Inc. remains in an early stage of commercial development, with its business focused on photonic integrated circuits, optical engines and light sources for AI and data center applications. The company reported second-quarter revenue of $569,925, more than doubling to 112% from the same quarter a year earlier and 13% sequentially. It was the sixth consecutive quarter of sequential revenue growth.
The company also reported a second-quarter net loss of $11.3 million, or $0.07 per share, compared with a $12.3 million loss in the first quarter and a $17.3 million loss a year earlier. POET Technologies Inc. ended the quarter with $796.3 million in cash and short-term investments after completing a $400 million financing in May. The company also disclosed a purchase order that represents the first phase of a potential supplier relationship that could result in more than $500 million of cumulative purchases over five years.
Continuing Losses And High Revenue Multiple
Despite its sequential revenue growth, POET Technologies Inc. remains unprofitable and generates negative operating cash flow. Operating cash flow was negative $12.2 million in the second quarter, compared with negative $7.8 million in the prior-year period. Research and development spending increased to $5.8 million as the company moved further from technology development toward product development.
The valuation is difficult to assess through conventional earnings multiples because the company remains loss-making. The company has no meaningful trailing or positive forward P/E, while its price-to-sales ratio is above 800x.
Hedge Funds Move In as Short Sellers Remain Aggressive
According to Insider Monkey’s database, 23 hedge funds held positions in POET Technologies Inc. at the close of the second quarter, up from 14 funds in the prior quarter. Among the 100+ hedge funds tracked by Insider Monkey, some notable names initiated or increased their position in the company substantially in Q2. Renaissance Technologies started a position worth 3.47 million shares and was the biggest hedge fund holder. In addition, Arrowstreet Capital increased its holdings by over 8400% to 1.68 million shares. Short interest stood at 13.2% of the public float, showing some aggressive bearish positioning by skeptics.
Cramer’s objection is about the company’s continued losses. While POET Technologies Inc. has reported rapid percentage growth from a small revenue base and maintains a substantial cash position, the company remains dependent on converting its technology and customer relationships into materially larger commercial revenue while controlling operating expenses.
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