Sierra Wireless: Don’t Miss the Buying OpportunitySWIR), whose shares have rallied nearly 64% from its lows of $9.95 per share on February 16 to the current level of $16.37 a share. In fact, its shares are up about 4% since year-to-date. The most important thing is that this rally in its share price performance was despite the fact that its earnings dropping by 62% sequentially and 72% year-over-year for the fourth-quarter of 2015. So, let us find out the reasons behind this growth in its share price performance.
Cost control measures are driving its growth
Sierra Wireless seems to be in command of its operating expenses.
As a result of this cost containment effort, Sierra Wireless was able to improve its gross margin by 8% to $193.8 million in 2015, compared with $179 million of gross margin in 2014. This expansion in the gross margin helped the company to increase its earnings by 27% to $0.80 per share for the year from earnings of $0.63 per share in 2014.
In addition, the company is finding more ways to improve its revenue. For instance, its revenue for the year rose by 10.8% to $607.8 million as against revenue of $548.5 million in 2014. This increase in its revenue is largely driven by its OEM segment that grew by 9.8% and accounted for 86% of the total revenue for the year, due to significant traction from automobile and connected cars market. Thus, with these cost control and revenue growth efforts, the company should be in a position to additionally improve its bottom line performance in 2016. On an important note, Sierra looking ahead forecasted revenue as well as earnings guidance for 2016 that implied revenue and earnings growth of 10% and 13% respectively for the year at the high end of its guidance as compared to 2015 levels. Not surprisingly, this growth in its top line looks pretty noticeable as SWIR is expected to start commercial production of 40 plus new customer programs with new industry-leading products and solutions in 2016.
Also, it is refreshing its gateway product portfolio and expanding its line of cloud and connectivity business. For instance, the company during 2015 acquired three connectivity companies namely Accel Network and MobiquiThings and Maingate. This investment in these acquisitions, coupled with its efforts of integrating these businesses with its legacy AirVantage cloud should enable the company to provide a fully unified cloud and connectivity experience for the IoT and IoT applications for its customer going forward.
According to Intel, internet of things alone provides an opportunity to the tune of $15 to $18 billion in by 2020. In fact, Intel believes that IOTG in retail will grow at CAGR of 20%, in transportation & automotive by CAGR of 30%, and 10% each of CAGR growth in energy and markets & channel accelerations such as gaming health and print imaging, and smart Home & Buildings.
Therefore, in my view, Sierra Wireless with these acquisitions will be in a better position to tap this opportunity in the internet of things, cloud and connectivity and create value for its shareholders and investors going forward.
Solid cash position
Sierra Wireless continues to strengthen its balance sheet. For instance, the company during the fourth-quarter generated $13.01 million of cash from operation as compared to $11.3 million in the same quarter a year earlier. This increase in its cash flow was despite its revenue getting declined by 2.8% for the quarter year-over-year basis. As a result, its cash and cash equivalents improved 6% to $93.9 million for the quarter as compared to $88.4 million in the previous quarter. The most important thing is that Sierra has no debt in its balance sheet, which will allow the company to efficiently use its cash flows for further acquisitions so as to drive growth for its business going forward.
Although Sierra Wireless’ financial performance has deteriorated in the last quarter, the prospects for IoT, cloud and connectivity remains solid in the future. This should allow the company to improve its financial position in the future. In fact, the company sees an improvement in the top as well as the bottom line in 2016, as discussed above. Moreover, the company is reducing its operating expenditures that will permit the company to additionally improve its earnings going forward.
Published on Jun 21, 2016By Yaggyaseni Mittra