2 Microcaps for Your Watchlist

Syntec Optics Holdings, Inc. (OPTX) is a vertically integrated manufacturer of optics and photonics components and sub-systems, including optical elements, opto-mechanical components, and electro-optics assemblies for mission-critical applications.

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Importantly, Syntec Optics Holdings, Inc. (OPTX) has demonstrated an ability to execute by converting developmental programs into new commercial product lines.

In our microcap universe, this company may have the most interesting portfolio of products, solving real world problems via light waves. Some products include the following. New products for satellite collision-avoidance. Microconnectors for data centers. Space-to-Earth solar technology. Orbital AI-compute assemblies. Products for surgical robots and DNA sequencing. AR/VR military applications including advanced eye tracking and specialized illumination. 

In some ways, Syntec is bringing science fiction to life. They even have products for nuclear fusion reactors. And their more legacy segment of biomedical products, in the form of laser blood-test cartridges, measure blood gases as well as hemoglobin, electrolytes, and metabolites faster than typical labs, providing critical data in acute care settings.

So why the Neutral rating? While topline growth has been strong (26% YOY last quarter), it has not been parabolic. The guidance for the next 2 quarters implies FY26 sales growth of about 16% for the Fiscal Year. And the stock trades at a TTM EV/Sales multiple of 11x. 

While the market seems to disagree, facilitating a recent $20 m raise at $7/share, we prefer to stay on the sidelines for the moment.

The other microcap, Altigen Communications, Inc. (ATGN), is a Microsoft Independent Software Vendor (ISV), Cloud Solutions Provider (CSP), and Consulting Services vendor. Altigen Communications (ATGN) specializes in integrated business communications solutions, with a primary focus on Unified Communications as a Service (UCaaS), Contact Center as a Service (CCaaS), customer self-service, and technology consulting.

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Several of the large tech players have been reporting positive results in their cloud businesses related to AI so it is worth investigating ATGN. The company has been deliberately transitioning from its legacy on-premises products to the cloud.

The application of AI to customer service via virtual agents seems like a natural fit. 

Importantly, the company is going after larger fish vs. a previous customer base of smaller enterprises. And the strategy is yielding some early success as the company recorded its largest ever customer cloud win in the last quarter.

Lack of consistent topline growth keeps us on the sidelines at present with a Neutral rating. But the bet is that the company continues to execute larger deals which could lead to step-up revenue growth.

The stock is currently trading at 0.79X trailing 12-month EV/sales value, which compares to 8.85X for the Zacks sub-industry, 8.44X for the Zacks sector and 5.73X for the S&P 500 index.

Over the past five years, the stock has traded as high as 4.24X and as low as 0.48X, with a five-year median of 1.05X. 

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This article originally published on Zacks Investment Research (zacks.com).

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