SWIR - Sierra Wireless Inc.

[rkbabang]

I've been doing some reading lately on the so called "Internet of things" or "Internet of everything" basically connecting objects to the net to be monitored or controlled and one company keeps coming up that looks interesting. Sierra Wireless.  P/E around 8, no debt, >$6/share in cash (its trading around $20), been around for a long time, has some patents on enabling technology.    I haven't dug too deep yet, but it has sparked my interest.  Sounds to me like a company that will get acquired in the not too distant future by someone larger.  Anyone own SWIR or looked into it?  Or any other company in this area?

 

[west]

At today's price, 2x book, what's the thesis for this company's price going up any more?  If you look at SWIR's history, it has a tendency to swing to some pretty nasty losses every couple of years.  And it looks like its been doing pretty well the last few years...

 

Looking further at long term numbers, minus a big increase in 2007 the book value for the total firm has remained flat since 2003... While shares outstanding have increased over 50%...

 

And sales have trended down over 25% since 2008...

 

This all being said, I know the devil can often be found in the details.  Is there something I'm missing just by doing a cursory glance at the numbers here?

 

[rykelsap]

Sierra Wireless is an interesting play on M2M but the company is not trading anywhere near 8x P/E. I believe your multiple is being skewed by the sale of the AirCard Business to NETGEAR in Q2 2013. The company’s continuing operations have lost $13.6mm in the last nine months and consensus estimates for 2014 are for EPS of $0.56 (for whatever that is worth).

[west]

Whoops.  Small update.  It looks like it has been doing decently well from a cash flow perspective the last few years.  It's earnings were negative (nastily so) in 2009, 2010 and 2011 though.  All the more reason to make me wonder why someone would want to pay 2x book for the business.

 

Thread hijacking a bit here, if you want to look at a tech company that has swings like this, but a decent amount of cash, check out AXTI.  Then try calculating its historical ROIC backing out the cash on the balance sheet ;)

 

I haven't bought any of it for myself yet.  I'm still investigating it.  It certainly looks like it's more at the bottom of its cycle than SWIR though...

 

[rkbabang]

Sierra Wireless is an interesting play on M2M but the company is not trading anywhere near 8x P/E. I believe your multiple is being skewed by the sale of the AirCard Business to NETGEAR in Q2 2013. The company’s continuing operations have lost $13.6mm in the last nine months and consensus estimates for 2014 are for EPS of $0.56 (for whatever that is worth).

 

I've been reading through the last few quarterly reports and had just figured that out.  It doesn't look quite as cheap as it did at first glance.

[Guest 50centdollars]

I think it could be a good short at these prices.

[rkbabang]

Whoops.  Small update.  It looks like it has been doing decently well from a cash flow perspective the last few years.  It's earnings were negative (nastily so) in 2009, 2010 and 2011 though.  All the more reason to make me wonder why someone would want to pay 2x book for the business.

 

Thread hijacking a bit here, if you want to look at a tech company that has swings like this, but a decent amount of cash, check out AXTI.  Then try calculating its historical ROIC backing out the cash on the balance sheet ;)

 

I haven't bought any of it for myself yet.  I'm still investigating it.  It certainly looks like it's more at the bottom of its cycle than SWIR though...

 

AXTI is a very different company. The silicon industry is mature and very cyclical.  I'm looking at SWIR, because I think the industry it is in is in for massive growth over the next 5+ years.  In other words I'm looking at it for the same reason I bought NFLX at $11 way back when.  It is the largest company in a currently tiny industry which I think is going to be huge.  You can't look at its past sales and draw any conclusion about the future, because it was way too early in the game back then.  And you can't compare it to a company in a mature industry like AXTI. This is a technology that is still in the beginning stages of catching on.  It's like a team that shows up 10 hours early for the game and when it is still 1 hour before game-time you complain that they've been here 9 hours and haven't scored a goal yet.  Admittedly it is more of a growth bet than a value stock, but something I'll be watching anyway.  When I saw the ttm earnings I was thinking it might be a slam-dunk and rushed to the board to see if there was a topic on it yet, then started one.  I should have done more research, but if this m2m industry grows the way I think it will, this thread will be needed here eventually anyway.  I'm going to pass on this for now though, might be interesting on a huge dip.  I say this knowing full well that I've been saying the same thing about Amazon.com for over a decade. :)

[west]

Thread hijacking a bit here, if you want to look at a tech company that has swings like this, but a decent amount of cash, check out AXTI.  Then try calculating its historical ROIC backing out the cash on the balance sheet ;)

 

I haven't bought any of it for myself yet.  I'm still investigating it.  It certainly looks like it's more at the bottom of its cycle than SWIR though...

 

AXTI is a very different company. The silicon industry is mature and very cyclical.  I'm looking at SWIR, because I think the industry it is in is in for massive growth over the next 5+ years.

 

rkbabang,

 

While SWIR and AXTI are technically in different industries, they're more similar than one might initially think, especially if you're looking to bet that the wireless device market is going to grow.

 

Different types of semiconductors require different types of semiconductor substrates.  Semiconductors for wireless communications often use Gallium Arsenic substrates, which AXTI happens to manufacture...