In the world of investing, you are either on the cutting edge or you are left behind. And right now, the cutting edge is, without a doubt, virtual reality. This immersive technology has taken the world by storm, transcending mere gaming to reshape the health care and real estate industries.
According to a report from Precedence Research, the global virtual reality market was estimated to be worth $30.64 billion in 2022. This market is projected to experience significant growth over the next decade, with forecasts suggesting a value of around $113.59 billion by 2032, representing a remarkable compound annual growth rate from 2023 to 2032.
Investing in virtual reality stocks
For astute investors, virtual reality stocks present immense opportunities. We will explore pioneering companies, boundary-pushing innovators and potential future giants in the sector.
To identify the best stocks, I used the GuruFocus All-in-One Screener. At this growth phase, many companies are not profitable; hence, the emphasis is on revenue, particularly the future three to five-year total revenue growth rate, rather than profitability.
Valuation and liquidity in VR investments
In addition, valuation remains crucial. Hence, companies with a price-sales ratio below their historical average were preferred when crafting this list.
In the virtual reality sector, the cash ratio becomes critical, signifying the importance of liquidity. Given the fast-paced nature of this industry, having ample funds for research, innovation and adaptation is vital. The cash ratio, reflecting a company's capacity to meet short-term financial obligations with available cash, serves as a key indicator of financial health.
After a thorough evaluation using these benchmarks, two standout candidates emerged. These gems, distinguished from the rest, truly shone brightly in my assessment. Buckle up and adjust your headsets; it is time to dive deep into the virtual domain where technology and reality blur.
Matterport
In the ever-evolving realm of virtual reality, Matterport Inc. (MTTR, Financial) stands out as one of the undervalued virtual reality stocks with potential that the market has not fully realized.
The Sunnyvale, California-based company, a key player in the software industry, exhibits a commendable cash ratio of 8.94. This financial stability underscores its liquidity and capacity to meet short-term obligations without relying on the sale of inventory.
Financial position and future prospects
Notably, when benchmarked against companies in the same sector, Matterport outperforms a vast majority, ranking better than 96.67%. This places the company in a robust financial position within the industry.
Regarding its price-sales ratio, the company is currently at 4.58, considerably lower than its median value of 6.48 over the period analyzed and substantially below the maximum value of 13.77. This suggests the stock trades at a relative discount compared to its past valuations.
Furthermore, looking into the future, Matterport is projected to experience a substantial three-to-five-year total revenue growth rate of 28.26%, surpassing 91.49% of companies in the software industry. This potential for growth further underlines the company's promising market position.
Recent performance and market opportunities
Over the past six months, its stock has declined approximately 27%, which may paint an unfavorable picture to a cursory observer. However, delving deeper into its second-quarter earnings report, a more nuanced story emerges.
The company reported revenue of $39.6 million, marking an impressive growth of 39% year over year. However, Matterport reported a net loss of $56.5 million, representing a modest decline of 13% from the previous year. Moreover, its diluted earnings loss of 19 cents per share beat the market's expectations by a commendable 11%.
Further, Matterport's recent partnership with Equinox Technologies to venture into digital solutions for the Middle East and Africa signifies the vast market opportunity waiting to be tapped.
Despite the headwinds, there is ample opportunity ahead. Matterport has raised its earnings per share outlook for the year, and while its growth might not have met some market expectations, the landscape remains rife with possibilities. With a solid market share, the company remains well-poised to capitalize on the expanding horizons of the virtual reality space. As the saying goes, "In the middle of difficulty lies opportunity." For discerning investors, Matterport might be that beacon of potential in the dynamic world of virtual reality.
NetEase
The virtual reality space is rapidly evolving, and while many investors scramble to identify the top players in this burgeoning industry, some jewels often go unnoticed. NetEase Inc. (NTES, Financial) stands out as one such gem, boasting a commendable year-to-date return of 29%.
Valuation and growth prospects
NetEase Inc. (NTES, Financial) currently has a price-sales ratio of 4.62. Over the past decade, its ratio has fluctuated within a range of 2.53 at its lowest, reaching a median of 5.5 and peaking at 9.4.
Projections indicate a total revenue growth rate of 8.2% for the next three to five years. This growth rate places NetEase ahead of 50.56% of companies in the interactive media industry.
Financial position and recent developments
Additionally, with a cash ratio of 2.07, NetEase stands in a strong financial position, outperforming 62.48% of competitors. This data underscores the resilience and growth potential of the company compared to its peers.
On the financials front, based on non-GAAP earnings of 34 cents per share and impressive revenue of $3.62 billion for the first quarter of 2023, it is evident that the company is on a robust growth trajectory.
However, it is not just the numbers that make NetEase a compelling potential investment. Delving into recent developments, NetEase Cloud Music and Ryce Entertainment have expanded their agreement on content libraries, suggesting a further augmentation in their diverse portfolio.
Moreover, JPMorgan's reaffirmation of NetEase as a top pick in the China online gaming sector further accentuates its stronghold in the market. NetEase is a promising contender for investors keen on leveraging high-return virtual reality stocks. It is steadfastly positioning itself at the forefront of the virtual reality revolution through strategic partnerships and innovative ventures.
