Biometric technology is becoming more common, with the market expected to grow to $65.3 billion by 2024. As a result, more investors are seeking biometric stocks to buy.
Increasing digitization trends across different sectors are leading the driving demand for biometrics. Additionally, biometrics in government initiatives and its role in cybersecurity has been one of the major drivers for growth. Apart from that, its pervasiveness with emerging technologies is likely to lead to major partnerships in different sectors.
However, biometric vendors must look for new ways to innovate to sustain demand for their products. With the advancements in technology, security systems will also need to adapt to stay abreast of changes.
There are several pure and secondary plays in the industry, which would make for superb investment options at this time.
Let’s look at three of the most attractive biometric stocks to buy in the current market scenario:
Aware (AWRE)
Intellicheck (IDN)
Alphabet (GOOG)
Aware (AWRE) is one of the top biometrics
software companies providing its services to
various private and public sector entities. It
fulfills a range of critical security functions
including identity authentication, voice capture
modalities and centralized data processing.
Despite having a troubled 2020, AWRE
stock is up 8.73%.
The company’s second-quarter was rough, with revenue down 37% year-over-year. Hence, its operating loss widened to $3.7 million, compared to an operating loss of $1.2 million in the prior-year period. The novel coronavirus resulted in procurement delays, which impacted license and services revenue.
Despite recent setbacks, there are a few exciting developments that make it an attractive investment option. Firstly, its CaptureSuite solution was chosen by a European government to expand its border security measures. The U.S. Customs and Border Protection Agency is already using the software to reduce queue buildup at the border. Moreover, it has also released an updated version of Knomi, its hugely successful mobile biometric framework.
Aware
Intellicheck (IDN) is a company providing
biometric solutions to retail, defense, banking
and other sectors. It has a simple product that
detects the genuineness of a driver’s license
by scanning the barcode written on the back
of the license. It does so with 100% accuracy
and has one of the best customer retention
rates in the sector. The 12-month return for
IDN is a remarkable 31.5%.
The company recently reported its stellar second-quarter results with an 18% growth in revenue. It more than made up for its lower SaaS revenues in the first quarter with a 49% year-on-year increase in the second quarter. Additionally, gross profits improved by 2.7% to 88.6% compared to the prior-year period.
Going forward, the company expects revenue to grow by 46%, which is significantly higher than the growth in the U.S. market.
There are a lot of positives about Intellicheck, which essentially makes it an outlier in the sector. Its unmatched success rates have helped develop a loyal customer base. It currently has minimal debt, and with its healthy liquidity position, it has enough room to scale up in the coming years.
Additionally, the market for the company’s services is growing, as its management believes that SaaS revenues from the top tier banks alone could exceed $200 million.
Intellicheck
California-based Lumentum
(LITE) manufactures optical
and photonic products that
are used by optical net-
working and commercial
customers. One of the
brightest
lights in the sector, Lumentum, benefits from able management, and strong fundamentals. Its recent quarterly results confirmed that the business remains novel coronavirus proof, despite supply chain issues arising due to
the virus.
Revenue came in at $368.1 million, beating consensus estimates by $18 million. Net income is positive for the quarter and trailing nine months. Shares gained 5% pre-market after the Q4 beats on EPS and margins. However, supply chain issues buffeted the company during the quarter. But that’s an expected issue since we are in the middle of a pandemic. Many countries implemented restrictions on the free movement of goods. That affected Lumentum’s logistics, especially in countries like Malaysia.
With all that said, let’s discuss valuation a bit before wrapping up. With LITE stock trading at 53.14x trailing 12 months price to earnings, shares are hardly available at a discount. It’s arguable that the stock is in the overbought category. That’s not to say I am not bullish on its future. It’s just that I would wait for shares to drop 10% to 15% before buying in.
Lumentum Holdings
Outside of Microsoft, perhaps
no large company has better
managed the transition to SaaS
than Adobe (ADBE). Its
Photoshop and Illustrator,
among other platforms,
traditionally were disk-based options.
They are now part of bundles, including Adobe Creative Cloud, that have driven impressive and consistent growth in recent years.
As with CRM, valuation admittedly is a concern. ADBE stock historically didn’t look that expensive, often trading at 30x forward earnings or less. It’s now as 43x.
But with MSFT itself clearing 30x, and CRM over 50x, that multiple on its face isn’t outrageous. And with Adobe’s growth likely to include e-signatures as well, there’s plenty of runway for the company to grow into the steep valuation assigned its stock.
Adobe
Biometrics is not the first thing that comes to
mind when you’d think about Alphabet
(GOOG). However, the reality is that the
Google parent has its tentacles in an array of
businesses. It wouldn’t be wrong to say that a
company such as Alphabet could take the
biometric industry to the next level.
Therefore, expect GOOG stock to benefit from the company’s strategic investments in the biometric space.
However, the company has hit a road-block as far as its investments in the industry are concerned. Amazon (AMZN), Microsoft (MSFT), and Google are being sued for breaching data privacy laws in Illinois for using personal biometric data without consent. The plaintiffs argue that the companies were collecting biometric data from IBM’s (IBM) “Diversity in Faces” database to train their facial recognition systems.
In another lawsuit, a pair of children from the same state claim that Google collected biometric information through its educational software without their consent.
Hence, it’s clear that things are looking dicey in the biometric space for Alphabet. However, once its legal woes are resolved, I expect the company to play a massive role in its expansion. That makes it one of the biometric stocks to buy.
Alphabet
California-based
Lumentum (LITE)
manufactures optical
and photonic products that are used by optical networking and commercial customers. One of the brightest lights in
the sector, Lumentum, benefits from able management, and strong fundamentals. Its recent quarterly results confirmed that the business remains novel coronavirus proof, despite supply chain issues arising due to the virus.
Revenue came in at $368.1 million, beating consensus estimates by $18 million. Net income is positive for the quarter and trailing nine months. Shares gained 5% pre-market after the Q4 beats on EPS and margins. However, supply chain issues buffeted the company during the quarter. But that’s an expected issue since we are in the middle of a pandemic. Many countries implemented restrictions on the free movement of goods. That affected Lumentum’s logistics, especially in countries like Malaysia.
With all that said, let’s discuss valuation a bit before wrapping up. With LITE stock trading at 53.14x trailing 12 months price to earnings, shares are hardly available at a discount. It’s arguable that the stock is in the overbought category. That’s not to say I am not bullish on its future. It’s just that I would wait for shares to drop 10% to 15% before buying in.
Lumentum
Holdings
If an investor is going
to own an SaaS stock,
one place to start is
with the company
that brought the model to the mainstream. Salesforce (CRM) went after Oracle’s dominance in CRM (customer relationship management) software via its cloud model.
Since then, CRM stock has been one of the best in the market. It’s returned 4,750% since its 2004 initial public offering. That’s a staggering annualized return over 25%.
The gains are going to slow going forward, but they’re unlikely to stop. Salesforce still has a massive lead in CRM, though HubSpot (HUBS) is trying to chip away. The 2016 acquisition of Demandware moves the company more heavily into e-commerce as well.
To be sure, CRM stock isn’t cheap. But it hasn’t been pretty much ever. This seems a classic case of investors paying up for quality.
Salesforce
Outside of Microsoft,
perhaps no large
company has better
managed the
transition to SaaS than Adobe (ADBE). Its
Photoshop and Illustrator, among other platforms, traditionally were disk-based options.
They are now part of bundles, including Adobe Creative Cloud, that have driven impressive and consistent growth in recent years.
As with CRM, valuation admittedly is a concern. ADBE stock historically didn’t look that expensive, often trading at 30x forward earnings or less. It’s now as 43x.
But with MSFT itself clearing 30x, and CRM over 50x, that multiple on its face isn’t outrageous. And with Adobe’s growth likely to include e-signatures as well, there’s plenty of runway for the company to grow into the steep valuation assigned its stock.
Adobe
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.