Australia-listed Audinate Group is one of the 10 stocks in The Edge Singapore’s Global Virtual Portfolio for this year. The company reported its 1HFY2025 ended Dec 31, 2024 results on Feb 17.
Although Audinate’s results may seem underwhelming in absolute terms, it beat expectations and estimates, propelling its share price above our initial intrinsic valuation.
The company currently trades at A$9.55 ($8.15), above our fair value of the company at A$9.42. We have done a post-result revaluation of the company and think that the new intrinsic value for Audinate is A$10.11. Chart 1 and Chart 2 illustrate the valuation overview and its current price to intrinsic value, respectively.
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To recap, Audinate is a smallcap audio visual (AV) software solutions company and a global supplier of digital media networking for the professional AV industry. Audinate’s flagship solution, Dante, is a market leader in its niche. The case for investing in Audinate is that it is a company with a great product and a large addressable market for future growth.
In 1HFY2025, the company’s losses were much smaller than expected due to effective cost-control measures. Revenue for the half-year period was down 38%, while the company made net losses compared to the previous comparable period’s profits. This was mainly impacted by excess inventory through accumulated inventory balances, leading to a dampening in short-term demand for its hardware chips, cards and module (CCM) products. Audinate expects these conditions to persist throughout FY2025 but anticipates a return to more typical order patterns in FY2026 as inventory levels normalise. Given the company’s transition in product mix towards the more cost-effective software segment, it is strategic to offset the short-term headwinds from its CCM segment. Further, in terms of business metrics, Audinate secured 61 design wins for 1HFY2025, representing a 15% increase y-o-y. These wins not only provide earnings visibility, but also show that the company is capturing the addressable market well, which is in line with our thesis.
We will keep this stock in our portfolio for now, until we find a more undervalued stock to replace it. The goal of this portfolio is not to hold stocks long enough that it qualifies to be a “long-term investment”. If a stock reaches its intrinsic value regardless of its holding period, be it a week or a year, it is fairly valued at best, and investors should have the discipline to sell it or utilise trading features such as stop-limit orders or options to set a floor for their investment returns, while they find another stock or asset class to replace it. To clarify, long-term stock investments are ones that are persistently undervalued every time investors revalue the stock, usually after significantly important events such as results announcements.
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Essentially, once a stock ceases to be undervalued, it should be replaced if possible, due to the opportunity cost of money and investment returns.
Disclaimer: This article is for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This article does not take into account an investor’s particular financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor's own discretion and/or after consulting licensed investment professionals, at their own risk.
