A Small Cap Stock With Massive Upside Potential

After disappointing shareholders in 2016, Sierra Wireless Inc. (NASDAQ:SWIR) was off to a great start heading into this year. The stock was up more than 100%, reaching its 52-week high in June. Since then, the stock has lost its upward momentum and is up just 24% year to date.

Sierra Wireless reported decent third-quarter results on Nov. 2. For the quarter, the company posted earnings per share of 23 cents, beating the analysts’ estimate by 2 cents. On the other hand, its revenue came in at $173.2 million, again exceeding the consensus by almost $3 million.

Most significant, that figure represents a surge of nearly 13% year over year. The company’s revenue growth decelerated considerably in 2016, but it has successfully managed to return to healthy revenue growth this year.

During the quarter, the company reported that each of its three business segments delivered year-over-year revenue growth. The solid revenue led to enhanced profitability with adjusted EBITDA of $13.1 million, a surge of 35% year over year.

Sierra Wireless currently generates the majority of its revenue from its original equipment manufacturers (OEM) segment but is aggressively trying to diversify its revenue stream. The company holds a leading position around the globe in shipment volume in gateway and router solutions for enterprise, industrial and mobile applications.

On the other hand, the company comprises a healthy balance sheet that enables it to spend freely on research and development (R&D). The company also has been an aggressive player in the merger and acquisition (M&A) market.

In 2017, the company has acquired GNSS-embedded module assets of Globaltop Technology, technology assets of Flow Search Corp., and now is on its way to acquiring Numerex Corp., a leading provider of enterprise solutions enabling the Internet of Things. The deal is valued at approximately $107 million.

The acquisition of Numerex will allow the company to hasten its device-to-cloud strategy by adding an established customer base, effective solutions and substantial sales capacity along with recurring revenue sales.

Moving onward, for the current quarter, the wireless broadband modem manufacturer projects its earnings per share to be in the range of 21 cents to 29 cents. Also, it expects its revenue to be between $172 million and $180 million.

Summing up

Despite beating analysts’ estimate on both the bottom-line as well as the top-line front, shares of Sierra Wireless are down more than 15%. This selloff, though, represents a good entry point for investors.

The company carries on strengthening its leadership position in the Internet of Things market on the back of acquisitions, new product launches as well as new technology initiatives. Being an industry leader in the Internet of Things market, Sierra Wireless appears to be in a great position to gain massive benefit from the growth in the industry in the future.

On the other hand, the company continues investing massively in R&D and M&A which will certainly provide strategic growth going forward. The company currently trades at a price-earnings (P/E) ratio of almost 27 (ttm), comparatively higher than its rivals.

Although Sierra Wireless looks slightly expensive at current market price, its high valuation is justified considering the loftier future growth opportunities. As a result, shareholders should consider buying the stock as it has massive upside potential.

Disclosure: No position in the stock mentioned in this article.

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