Topic: Growth Stocks

Earnings jump for this Internet of Things leader

This IoT (Internet of Things) component maker produces high-profit-margin digital components to connect electricity meters, automobiles, and security systems to the Internet. Its earnings in the latest quarter were up 36.4% and suggest a recent acquisition is already paying off. The company’s high research spending is another contributor.

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SIERRA WIRELESS $18.19 (Toronto symbol SW; makes digital components that connect products, including smart electricity meters, automobiles, fleet and transit vehicles, and home security systems, to the Internet. That machine-to-machine networking is commonly known as the “Internet of Things.”

In the quarter ended September 30, 2018, Sierra made sales of $203.4 million. That’s a 17.9% jump from $172.6 million a year earlier (all figures except share price and market cap in U.S. dollars).

Excluding one-time items, the company earned $10.5 million, or $0.29 a share. That was up 36.4% from $7.7 million, or $0.24, a year earlier. Sierra sold more high-profit-margin products in the quarter.

Growth Stocks: IoT software acquisition made without spending cash

To remain competitive, the company spends a high 12% of its revenue on research and development. It also buys firms with technology and products that it can use for its existing business. Most recently, Sierra acquired Numerex Corporation (symbol NMRX on Nasdaq) for $107 million of its common shares.

That firm operates in the same Internet of Things market as Sierra, but it provides a range of products and software specifically tailored to the needs of distinct customer groups. Numerex’s services include law-enforcement tracking of non-violent offenders; monitoring and tracking of waste management bins, containers and vehicles; and end-to-end tracking of factory and warehouse operations.

Sierra holds cash of $67.5 million, or $1.88 a share, and has low debt.

Recommendation in Stock Pickers Digest: Sierra Wireless is a buy.


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