Identity and access management (IAM) platform BIO-key International, Inc. (BKYI) offers fingerprint identification biometric technology to commercial, government, and education customers in the United States and worldwide. Growing demand for BKYI’s PortalGuard cloud-hosted IDaaS solution and expanded customer reach through its Channel Alliance Partner (CAP) program have garnered investors’ attention, as evident from the stock’s 13.6% gains over the past month.

However, the stock has declined 8.7% over the past three months. While BKYI’s continued investment in product development and innovation should strengthen its position in the market as the need for enhanced digital protection has never been greater than now, its negative profit margin could make investors nervous.

Here’s what could influence BKYI’s performance in the coming months:

Expanded Product Line

This month, BKYI announced the launch of an all-new line-up of cryptographic security keys compliant with the FIDO2 authentication standard. The affordably priced FIDO2 security key line-up would provide on-device biometric verification and strong authentication while addressing the global password problem. This new line-up expands the company’s unmatched authentication methods that it offers to customers at competitive prices.

CAP Program Can Accelerate Growth

On September 9, the company announced the start of a Master Agent Referral Partner Program with Intelisys, a leading technology services provider, to offer its PortalGuard Identity-as-a-Service (IDaaS) platform and support other IAM strategies. This partnership should expand BKYI’s Channel Alliance Partner (CAP) program and broaden its global partner ecosystem. Moreover, this could offer more revenue-generating opportunities for the IAM platform provider.

Underwhelming Financials

During the second quarter ended June 30, 2021, BKYI reported total revenue of $992 thousand, representing a 223% year-over-year increase, primarily attributable to the increase in license fee revenue. The company’s gross profit increased 374.2% from the prior-year quarter to $753 thousand. But its operating expenses rose 22% from the year-ago value to $1.9 million. In addition, BKYI’s net loss came in at $1.16 million, while its operating loss came in at $1.11 million for the quarter. Also, its hardware revenue declined 20% year-over-year to $43 thousand.

Poor Profitability

BKYI’s trailing-12-month asset turnover ratio of 0.4% is 43.9% lower than the industry average of 0.7%. In addition, its cash from operations of negative $8.22 million compares with the industry average of $116.77 million. Moreover, its net income margin, EBITDA margin, ROE, and ROA are negative 138%, 86%, 70%, and 32.2%, respectively.

POWR Ratings Reflect Uncertainty

BKYI has an overall rating of C, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. BKYI has a C grade for Growth. This is in sync with the stock’s mixed financials and growth prospects.

In terms of Quality Grade, BKYI has a D. The stock’s lower-than-industry asset turnover ratio is consistent with the Quality grade. Also, it has a Stability grade of D, in sync with its relatively high beta of 1.02.

In addition to the grades I’ve highlighted, one can check out additional BKYI ratings for Sentiment, Momentum, and Value here. BKYI is ranked #78 of 84 stocks in the B-rated Air/Defense Services industry.

Bottom Line

While an expanding product offering and increasing global reach of its cloud-hosted security solutions bode well for BKYI, the stock’s upside could be limited given its negative profit margin and rising expenses. So, we think investors should wait for the company to show further strength before investing in the stock.

How Does BIO-key International (BKYI) Stack Up Against its Peers?

While BKYI has a C rating in our proprietary rating system, one might want to consider taking a look at its industry peers, Brady Corporation (BRC) and NAPCO Security Technologies (NSSC) which have a B (Buy) rating.

BKYI shares were trading at $3.53 per share on Tuesday morning, down $0.09 (-2.49%). Year-to-date, BKYI has gained 0.28%, versus a 17.81% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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