Creative Realities Inc. (CREX) in Louisville, Ky., creates, develops, and implements digital signage experiences for enterprise-level networks and offers ongoing SaaS and support services in various vertical markets. It assists companies in using location-based digital media to accomplish business goals, such as higher revenue, improved customer experiences, and increased efficiency.

The stock is down 55.1% in price over the past year and 25.3% over the past month to close yesterday's trading session at $0.82. In addition, it is currently trading 77.2% below its 52-week high of $3.59.

CREX recently announced an $11 million private placement to fund its merger with Reflect Systems Inc., which might dilute the stock and hurt the company's existing shareholders. Furthermore, its poor profitability makes its near-term prospects look uncertain.

Click here to check out our Software Industry Report for 2022

Here is what could shape CREX's performance in the near term:

Additional Financing

In February, CREX agreed with a U.S. institutional investor for a private placement of 1,315,000 shares of common stock together with warrants to purchase up to 1,315,000 shares of common stock and 5,851,505 pre-funded warrants, with each pre-funded warrant exercisable for one share of common stock and common warrants. The company expects to use the proceeds from the private placement to pay a part of the cash component of the merger consideration due to stockholders of Reflect Systems, Inc. upon the completion of the acquisition.

Poor Profitability

CREX's 45.3% trailing-12-months gross profit margin is 10.8% lower than its 50.8% industry average. Also, CREX's levered FCF margin, EBITDA margin and ROC are negative 0.97%, 6.6%, and 10.3%, respectively. And its $471,000   trailing-12-month cash from operations is 99.8% lower than its $299.40 million industry average.

Discounted Valuation

In terms of trailing-12-months Price/Sales, the stock is currently trading at 0.54x, which is 67.1% lower than the 1.65x industry average. Also, its 1.01x trailing-12-months EV/Sales is 59.8% lower than the 2.52x industry average. Furthermore, CREX's 1.17x trailing-12-months Price/Book is 44.6% lower than the 2.12x industry average.

POWR Ratings Reflect Uncertainty

CREX has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CREX has an F grade for Stability. The stock’s 3.62 beta is consistent with the Stability grade.

Among the 147 stocks in the D-rated Software – Application industry, CREX is ranked #45.

Beyond what I have stated above, you can view CREX ratings for Quality, Growth, Momentum, Value, and Sentiment here.

Click here to check out our Software Industry Report for 2022

Bottom Line

While CREX's increasing investments across business segments should bolster its long-term prospects, the company's lack of profitability could concern investors. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $1.12 and $1.49, respectively, indicating bearish sentiment. So, we believe investors should wait for its prospects to stabilize before scooping up the shares.

How Does Creative Realities Inc. (CREX) Stack Up Against its Peers?

While CREX has an overall C rating, one might want to consider its industry peers, Commvault Systems Inc. (CVLT), Rimini Street Inc. (RMNI), and Progress Software Corporation (PRGS) which have an overall A (Strong Buy) rating.

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CREX shares fell $0.82 (-100.00%) in premarket trading Friday. Year-to-date, CREX has declined -41.43%, versus a -4.61% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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