Sierra Wireless (SWIR, Financial) was almost flat in 2016, as the stock was down just 0.25%. However, the stock has been performing incredibly well heading into 2017, as it is up more than 55% year to date.
Sierra Wireless recently reported strong fourth quarter results. In the fourth quarter, the company detailed EPS of 27 cents, beating the estimates by a wide margin of 11 cents. The company reported revenue of $163 million, again beating the estimates by $1.94 million, which also represents a surge of 12.6% year over year.
The revenue generated from OEM solutions and enterprise solutions segments increased 11.2% and 27.1% year over year, respectively. The gross margin was 42.2%, up 11.3% compared to a year ago period, on the back of $14.4 million reduction in cost of goods sold.
After posting negative revenue growth in the past three quarters, the company finally managed to report positive revenue growth in the fourth quarter. The primary reason behind strong performance in the most recent quarter was the gradual rise of IoT devices.
Among all markets, Internet of Things account for one of the hottest growth areas. According to marketsandmarkets.com, the Internet of Things market is projected to grow to $661.74 billion by 2021, up from $157.05 billion in 2016 which represents a compound annual growth rate of 33.3%.
Therefore, many companies in the tech sector are betting big on Internet of Things, as IoT combined with big data and cloud computing is crafting substantial growth opportunities.
Keeping in mind the positive outlook of Internet of Things, Sierra Wireless appears to be in a great position to gain huge advantages in the forthcoming years, as it is the leading manufacturer of 2G, 3G and 4G entrenched modules and gateways, which establishes a connecting link between objects and the cloud. The modules also enable IoT devices to connect with each other.
The company has a functional strategy in place to seize a massive portion of the Internet of Things. Moreover, the company continues to create cloud-based software that permits connected devices to more proficiently communicate with one another. As a result, this should help it to create another higher-margin revenue stream apart from the chip sales.
Volkswagen (VLKAF, Financial), one of the world’s largest car manufacturers, has chosen Sierra Wireless to deliver 4G embedded solutions to connect Volkswagen cars to its Car-Net service, which is a great win for the company.
Conclusion
Sierra Wireless has already begun rewarding investors tapping into the Internet of Things trend, and will continue to do so in the years ahead as the IoT market expands. Furthermore, the company is also putting effort to strike partnerships that will help it to strengthen its position in the IoT market.
Investors should continue to hold the stock for long-term gains, as Sierra Wireless’ future looks bright.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
Start a free seven-day trial of Premium Membership to GuruFocus.Ă‚
