Topics Growth Stocks

Sierra Wireless $18.43 - Toronto symbol SW

SIERRA WIRELESS $18.43 (Toronto symbol SW; TSINetwork Rating: Extra Risk) (604-231-1100; www.sierrawireless.com; Shares outstanding: 32.0 million; Market cap: $584.7 million; No dividends paid) makes digital components that connect products, including smart electricity meters and vehicles, to the Internet. This is known as machine-to-machine networking, or the Internet of Things.

In the three months ended June 30, 2016, the company made sales of $156.2 million. That’s a 1.1% drop from the $158.0 million a year earlier (all figures except share price and market cap in U.S. dollars).

In the latest quarter, excluding one-time items, Sierra earned $6.4 million, or $0.20 a share, down 25.6% from $8.6 million, or $0.26, a year earlier.

New products, new field

The company is preparing to launch 40 new products. That’s holding back sales and profits as customers wait on the new components before placing orders.

Sierra recently bought GenX Mobile for $7.8 million. GenX makes in-vehicle cellular devices for the fleet management market. That’s a new area for Sierra, but it fits well with its current business.

To stay ahead of competitors, Sierra devotes a high 13% of its revenue to research. It holds cash of $98.4 million, or $3.08 a share, and has low debt.

The stock trades at 18.8 times forecast 2016 earnings of $0.75 U.S. a share. That’s somewhat high, but acceptable in light of Sierra’s strong research spending and its prospects in an expanding industry.

Sierra Wireless is a buy.

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