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Mitek Systems (MITK) recently reported their fiscal 2024 Q2 results, with revenue increasing by 1.8% year-over-year to $47 million. This growth was driven by demand for their new products, including MiVIP, MiPass, and ID R&D biometrics identity products. While this revenue figure exceeded expectations and came in at the top end of their guidance range, adjusted earnings of 24 cents per share were down 20% and missed consensus by a penny due to fees related to delayed SEC filings.

Despite the additional costs incurred for regulatory filings, MITK was able to generate $6.8 million in free cash flow during the quarter, marking an 8.2% increase from the previous year. This allowed them to reduce their net debt by $4.3 million to just $9.2 million, showcasing strong financial management and stability.

With MITK now up-to-date on their filings, it is unlikely that the extra fees will be a recurring issue. Additionally, their recent product innovations are gaining market acceptance, which bodes well for the company’s performance targets. MITK has maintained its full-year revenue guidance of $180 million to $185 million and its adjusted operating margin target of 30%-31%. This implies an acceleration in top-line growth to 21% and a return to earnings expansion in the second half of the year.

To capitalize on the positive outlook, MITK has initiated a $50 million program to repurchase its stock over the next two years. This move is expected to drive a rebound in the shares, which have dipped more than 10% from their initial post-earnings increase. Investors and analysts are optimistic about the company’s future prospects and believe that the stock has significant upside potential.

Julius Juenemann, CFA, an equity analyst and associate editor of the Forbes Special Situation Survey and Forbes Investor, recommends MITK as one of the stocks in the Forbes Investor portfolio. To access more undervalued gems with significant upside potential like MITK, readers are encouraged to subscribe to the Forbes Investor newsletter. The company’s positive performance in Q2 and strong outlook for the remainder of the year indicate a promising future for MITK and its investors.

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