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This Small-Cap Tech Stock Is Turning Sci-Fi Into Sci-Fact

- By John Persinos

Among the technological fantasies offered by science fiction, "Star Trek's" holodeck is one of the most intriguing. The holodeck shows realistic 3D images of anything you desire, whether it's a gladiator contest, a crowded city street, a ski race, a mountaintop aerie, you name it.

The 25th century has arrived early. Science fiction is quickly becoming science fact, as virtual reality/augmented reality, or VR/AR, is being adopted for a broad variety of commercial and personal uses.


VR/AR isn't just for gamers. Health care providers are using it for diagnostics; the Pentagon for combat training; real estate agents to display homes; and automobile makers to build virtual prototypes of new vehicles, to list only a few end uses.

Many of the companies developing VR/AR hardware and software are among the biggest names in Silicon Valley including Apple (AAPL), Alphabet (GOOG), Amazon (AMZN), Facebook (FB) and Sony (SNE).

A bevy of smaller players are emerging in the VR/AR space, but many are thinly capitalized and quickly burning through their cash reserves. One smaller player, though, has plenty of financial wherewithal and on Friday it announced a major deal with a global tech giant.

This small company is Vuzix (VUZI) (market cap: $117.1 million), a U.S.-based VR/AR pioneer, especially in the use of AR for business functions. Many analysts expect small caps to outperform this year, which makes Vuzix even more attractive.

Vuzix announced Friday that it had inked a deal to build a customized pair of smart glasses for Toshiba Client Solutions, a wholly owned subsidiary of Tokyo-based electronics firm Toshiba (TOSBF). The value of the deal wasn't disclosed, but Toshiba expects to place additional orders with Vuzix in the fourth quarter.

Founded in 1997, Vuzix originally emphasized defense work but in 2012 sold off that division to focus on commercial applications for its AR products.

The company announced on Feb. 13 that its M300 smart glasses are now certified to ship into Europe, the U.S., Canada, Australia, India and New Zealand. The M300 delivers a hands-free digital world to improve workflows for industrial, medical, retail and other applications.

Vuzix shares were trading sharply higher Friday afternoon in the wake of its announced deal with Toshiba. Further upside appears to be in the cards. The average analyst expectation calls for Vuzix's earnings to grow next year by 27.1% on a year-over-year basis.

What's more, the potential profits in the VR/AR industry are enormous. Goldman Sachs (GS) estimates that the market will reach $80 billion by 2025, with the potential for that figure to actually soar much higher, to more than $180 billion.

Vuzix's shares now trade at about $6; the average analyst one-year price target is $11, for a robust gain of more than 83%.

Disclosure: At the time of publication, the author owned stock in Apple.

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This article first appeared on GuruFocus.