Section 1: Company Overview and Fundamentals

1.1 Company Overview:

Canaan Inc. offers supercomputing solutions using its own high-performance ASICs (Application Specific Integrated Circuit). Customers may get a comprehensive AI (Artificial Intelligence) solution from the company that includes hardware modules, finished products, software services, algorithm creation and optimization, and AI chips.  

           

1.2 The Key Positives, Negatives, and Investment summary

1.3 Key Metrics:

The graphs below demonstrate the rising trend in the company's sales, gross profits, due to increased demand for the company’s products as well as increased efficiency in lowering the cost of revenues for the company. CAN’s topline and gross profit has grown at an impressive 4-year CAGR of 41.36% and 49.06% respectively. Higher CAGR for gross profit compared to revenue signifies improved efficiency in managing the cost of revenues. Furthermore, the company has performed better than the industry median which can be seen in higher profitability margins.

1.4 Top 10 shareholders:

• The top 10 shareholders together form ~22.30% of the total shareholding, signifying diverse shareholding. Invesco Capital Management LLC (3.92%) and The Vanguard Group, Inc (3.87%) are the biggest shareholders, holding the maximum stake in the company at ~3.92% and ~3.87%, respectively.

1.5 Bitcoin price analysis

The price of bitcoin has shown some positive movement in the past few days, after forming a double bottom on both the daily and weekly time frames. Furthermore, the BTC price has shown signs of bullish divergence in the weekly time frame, which will be confirmed once the price makes higher highs after breaking the key resistance level of USD 25,000. BTC has just broken above its short-term (50-day) SMA with good momentum and a higher RSI of around 62.19. Therefore, as the BTC price is expected to give a breakout above its resistance, similarly the same bullish momentum is expected in the CAN stock price.

Section 2: Business Updates and Financial Highlights

2.1 Recent Updates:

The below picture gives an overview of the recent updates:

 2.2 Insights of Q2FY22:

Section 3: Key Risks and Outlook

Section 4: Stock Recommendation Summary:

4.1 Price Performance and Technical Summary:

4.2 Fundamental Valuation

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 3: The report publishing date is as per the Pacific Time Zone.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.