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Why This Analyst Thinks Kornit Digital Is Overvalued On 'Misunderstood Hype'

Why This Analyst Thinks Kornit Digital Is Overvalued On 'Misunderstood Hype'

In an article published Monday, The Street Sweeper’s Senior Editor Sonya Colberg looked into Kornit Digital Ltd (NASDAQ: KRNT), a small-cap Israeli printer company that went public last April 2. The company focuses on inkjet printers used to stamp images directly onto T-shirts and other garments.

Last quarter, Kornit reported revenue of only $17.6 million and a $200,000 net loss. However, the market continues to value the company at roughly $400 million.

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According to Colberg, “The market has been led to misunderstand Kornit’s true business.”

Colberg continued, "You wouldn’t be able to IPO a $16 million company at huge valuation if you didn’t throw out some nice buzz words."

The analyst went on to explain the buzz comes from a misunderstanding of Kornit’s business, which has been connected to 3D printing, although the company is not involved in the industry. However, based on the confusion (exacerbated by exaggerated analyst hype), the market has assigned Kornit’s stock a 3D printing company valuation, at 50 times EBITDA and about 68 times its earnings.

The expert continued to explain the problem: “Using a commercially available printer head and boasting just ~7 patents, Kornit printers lack the ‘specialness’ to possibly justify any comparison to 3-D printers.”

Kornit Isn't That Special

Even in its own space, Kornit does not seem particularly well-positioned. Colberg mentioned a few “gorilla” rivals like Aeoon, Brothers and Epson that are “stomping Kornit in the direct-to-garment area that serves custom T-shirt companies.” The company’s signature Breeze printer costs twice as much as some of the top rivals’ printers and works at approximately the same speed.

Given this “misunderstood hype,” the analyst thinks a dilution is imminent and expects the stock to tumble ahead of the September stock lockup expiration. Colberg established a $6 price target, which she still considered generous.

Despite the bad press, shares of Kornit are up more than 1.3 percent on Monday trading.

Image Credit: Public Domain

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