Investors suddenly decided this week that Sierra Wireless Inc. is well positioned to ride the next big wave of technology.
Shares of the Richmond, B.C. -based company have jumped as the trend toward machine-to-machine (M2M) communication, or the Internet of Things, gains momentum.
M2M is “a big secular theme in tech,” said Richard Tse, an analyst at Cormark Securities. “Like big data and cloud computing, machine-to-machine is starting to hit the radar in terms of people understanding what it is. ”
M2M refers to the growing practice of allowing devices other than smartphones to speak to each other without human intervention. It’s the technology that enables your car to notify emergency services of a crash.
There are currently about 10.7 billion Internet connections worldwide. By the end of the decade, that could rise to 50 billion, according to Cisco Systems , largely as the result of more machine-to-machine communication.
Although Sierra Wireless is the world’s leading supplier of M2M modules, it has been trading at a discount to many of its U.S. peers.
IMHO the price movement has nothing to do with current revenue and eps, and has everything to do with 20 Billion devices being connected in the next 6 years. The real market is information and services that GE predicts will add over a Trillion dollars to global GDP. They have been sharing their Industrial Internet Strategy with the analysts. The smart analysts know that the table stakes for this market is connectivity. How much revenue will be driven to Sierra due to this initiative? The analysts believe in this market so much that the Sierra of today is cheap at $20 compared to the Sierra that is supplying that connectivity over the next 6 years. The market is waiting not for revenue but for announcements that Sierra has new contracts with manufacturing companies including automotive, power, shipping, and industrial machinery to embed connectivity. Those announcements or lack of them will drive the share price slope - my money is on exponentially positive side.
I'm bullish on the company, but I have a feeling you may be correct. The real question is what "earth" is, since it was sub-terranean for a long time before it blasted off. Based on current projections, the P/E based on next year's earnings would be about 30. That's rather high for the present growth rate. If the earnings are a little higher than previously projected, then that brings it down a bit (into the mid 20's, which sounds reasonable). Then you also have to factor in the zero debt and approx $8-10 per share in cash and assets. Looking at all of this, I'm thinking that $15-17 is probably around fair value.... what do others think?