KeyStone’s Your Stock Our Take – Sierra Wireless Inc. (SW:TSX), Star: is XPEL Technologies (DAP.U:TSX-V), Pioneering Technology Corp (PTE:TSX-V)

This week in our Your Stock, Our Take segment we look at Sierra Wireless Inc. (SW:TSX), a leading pure-play (Internet-of-Things) IoT company. A historically good business that has seen its shares sell-off over the past year and year-to-date. Is it a BUY, SELL, or HOLD – we’ll tell you. Our Star of the week is XPEL Technologies (DAP.U:TSX-V), one of our core Focus BUY Canadian Growth Stocks. The stock ended the week up 63% making it the single best performing stock on the TSX-Venture on day and for the week.

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Star of the Week

XPEL Technologies (DAP.U:TSX-V)

Wednesday of this week, shares in XPEL Technologies one of our core Focus BUY Canadian Growth Stocks, jumped 58%. The stock ended the week up 63% making it the single best performing companies on the TSX-Venture on day and for the week. The stock is the second best performing stock on the TSX-Venture in the past month only eclipsed by Covalon Technologies a stock which is also in our coverage universe and was a star here 2-weeks ago. Year-to-date XPEL is up over 130%

Firstly – What does the company do?

The company is a leading supplier of automotive paint protection and window films – that see-through film that prevents annoying scratches, dings, and dents on your new vehicle.

What is driving the stock?

A true blow out quarter – all-time records across the board.

  • Revenues increased 99.5% to $25.2 million compared to first quarter 2017 and sequential revenue growth of 24.5% compared to fourth quarter of 2018.
  • Earnings per share of $0.07 compared to a small lost in the first quarter 2017.

For our clients, it is an overnight success 9-months in the making. We recommended Buying last September with the stock trading at $1.45 and it has anywhere from $1.25 to $2.00 over that period, for the better part of that time at the low end of the range.

You would think with the stock producing such an impactful quarter and racking up the best gains year-to-date of all the roughly 2,000 stocks on the TSX-Venture that started the year above $1.00 in price it might get a little airtime on BNN or see some ink spilled in this countries financial pages or at the very least attract the attention of an analyst or 2 on Bay Street – alas, the company seems have gotten the Rodney Dangerfield treatment – no respect.

We are here to change that – granting XPEL the coveted title of KeyStone’s “Star of the Week”!

Your Stock, Our Take

Quick Note:

We had another follow-up question on a stock we have twice answered questions on in our Your Stock, Our Take segment – Pioneering Technology Corp (PTE:TSX-V). Once a year ago we stated we were not buyers at $1.10, calling it overvalued,. Again, 2-weeks ago we stated we were not buyers at $0.42. Today, after a weak quarter the stock dropped to $0.27. Essentially, the listener question with the big drop, was is it worth picking up some risk shares?

Leading to the drop;

  • Revenue in Q2 was down 40% vs. previous year and is down 33% year to date vs. same period year ago.
  • Net loss in Q2 was ($681,587) vs. ($45,366) during the same quarter year ago

We continue to avoid PTE. There is certainly a chance of a turnaround – it does not meet our criteria at this stage no matter how low the stock drops. This is not a terrible business – and its distributor model in the US holds long-term potential, but until it is profitable again and there is growth we will just monitor it as we see better opportunities with more certain earning growth at present.

Your Stock, Our Take

Maria in Calgary – your take on Sierra Wireless?

Sierra Wireless Inc. (SW:TSX)

What does the company do?

Sierra Wireless Inc. is a leading pure-play (Internet-of-Things) IoT company. 84% of its 2016 revenue was from the sale of wireless modules to OEM customers, 12% was from Enterprise Solutions (routers and gateways), and 4% was from Cloud & Connectivity Services.

Our Take

Sierra Wireless has bet big on the long-term growth prospects of the IoT market. We think it is a very intriguing segment long-term. In the near-term, the company just reported a Q1 with relatively weak margins. This was expected due to component shortages and the ongoing integration of a recent acquisition. Management is guiding for Q2 revenue of $195-$203 million and EPS of $0.17-$0.25 (non-GAAP). The guidance is in line with consensus expectations of $196.6 million in revenue and $0.20 of EPS. The component supply environment is expected to improve in Q2, but remain constrained. The Numerex integration continues to progress relatively well.

The consensus earnings on a “non GAAP” or adjusted basis for 2018 is $0.90 per share, down from $1.05 in 2017. The short-term earnings decline, shares have sold off near-term down 15% year-to-date in 2018 and roughly 40% over the past 52-weeks. Earnings are expected to rebound in 2019 to a consensus $1.25 (this consensus involves a great deal of forward looking assumptions). Based on 2018 expectations the stock trades at 25.7 times earnings which is a premium to the market despite the near-term drop. Given this, it is not surprising to see the share price weakness. If the earnings rebound in 2019, the stock appears relatively reasonably priced, but we see no need to buy the stock near-term given the lack of earning growth in 2018, the fact the PE is based on “adjusted earnings”, and the company’s poor stock performance to start which could lead to tax loss selling at the end of 2018. The latter may provide a better buying opportunity. The company has a good balance sheet and is growing its topline – We MONITOR the stock and the company’s growth outlook in 2018 and looking into 2019 for a potential buying opportunity.

HOLD if owned – not enter new positions – monitor for potential entry point.

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