On Friday, H.C. Wainwright adjusted its outlook on shares of Arqit Quantum Inc. (NASDAQ:ARQQ), increasing the price target to $27 from $22 while maintaining a Buy rating on the stock. Arqit Quantum (NASDAQ:QMCO), a company specializing in quantum encryption technology, reported its operating results for the six months ending in September 2024, before the market opened on Thursday.
According to InvestingPro data, the stock has shown remarkable momentum, delivering a 130% return over the past six months, though current analysis suggests the stock may be trading above its Fair Value. The results showed a year-over-year decline in revenue, attributed to a strategic shift from perpetual licenses to operational licenses that yield smaller, recurring payments.
Despite the near-term decline in revenue, H.C. Wainwright anticipates a more substantial revenue stream for the company in the upcoming fiscal year as it transitions from demonstration activity to operational licenses.
Moreover, a multi-year enterprise contract in the EMEA region, previously announced, is slated to start generating revenue, signaling the potential for further growth. This contract, expected to deliver at least one seven-figure annual sum, may also serve as a catalyst for securing additional government and enterprise customers within that market.
The firm noted that while there might be some investor discontent due to the slower-than-expected revenue growth, Arqit Quantum is poised to capitalize on the increasing threat of data security breaches posed by quantum computing in the future.
The company fortified its financial position by completing a capital raise of $13.6 million at the end of September 2024. Along with significant cost reductions, Arqit Quantum is believed to possess six to nine months of operating capital, even without any revenue contributions.
InvestingPro data reveals the company holds more cash than debt on its balance sheet, with a current ratio of 1.7, though it's worth noting the company is quickly burning through cash. For deeper insights into Arqit's financial health and 18 additional ProTips, subscribers can access the comprehensive Pro Research Report.
In the view of H.C. Wainwright, the positive developments and business momentum as Arqit Quantum heads into the year 2025 present a favorable risk-reward scenario for investors in ARQQ shares. The revised price target reflects a growing investor interest in small-cap growth stocks and the limited number of companies directly involved with the burgeoning field of quantum computing.
In other recent news, Arqit Quantum Inc. has implemented a 25:1 reverse share split, a strategic measure aimed at regaining compliance with the Nasdaq's minimum bid price requirement. This move has effectively reduced the number of Arqit's ordinary shares from around 469 million to approximately 18.76 million, while preference shares have been adjusted from nearly 31 million to 1.24 million.
The reverse split also proportionally adjusts the terms of outstanding warrants, including the number of shares issuable upon exercise and the exercise price. Shareholders will not receive fractional shares as a result of the split, with any fractional entitlements being rounded up to the nearest whole share.
These are recent developments following the company's decision to execute the reverse share split after receiving a notification of non-compliance on October 19, 2023, and being granted extensions to regain compliance. Arqit's innovative encryption services, recognized in the cybersecurity industry, continue to secure communications against current and future threats.
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