Lantronix (LTRX) designs and manufactures secure connectivity solutions for machine-to-machine (M2M) communications. M2M products include remote controls, computer peripherals, industrial automatic controls, medical devices, car sensors, etc. Since startup in the late 1980s, Lantronix was granted over 70 patents in the M2M technology sector recognizing very early the potential for exponential growth in this area.
At present, M2M market penetration is in its infancy (only about 1%). Analysts estimate that there are over 50 billion connectible machines today. With the explosive growth in smartphones, cell phones, tablets, sensors, and other devices, LTRX has positioned itself to capitalize on the growing demand in the M2M connectivity market. Taking their share, Lantronix expects to expand its tangible market by over 4x with new products, gains in current segments, and reorganized resources in the next two years.
The company's new management (established in 2012) has taken an aggressive approach to leverage the untapped potential the company has amassed over the years by recognizing that it can be very quickly monetized in future versions of existing products, as well as the development of new products.
The company momentum is now readily apparent. LTRX has launched several new products, including the immediately successful award-winning xPrintServer for home and office applications. The xPrintServer enables wireless printing from any iPad, iPhone or iPod to virtually any network printer. Since its launch, the company has attracted channel partners to boost product sales. The most recent addition was China's Amazon JD.com with access to over 150 cities in China. The partnership with JD.com was announced on August 8, 2013. This announcement was followed with the company participation as the Official Mobile Print Sponsor at the 2013 Macworld |iWorld Asia held at the China National Convention Center in Beijing from August 22 - August 25, 2013.
In my opinion, the most significant recent company announcement was the global availability of the xPico Wi-Fi connectivity modules. This product, and the products that the company plans to develop from its state-of-the-art technology platform are expected to become a significant growth engine for the company.
Lantronix CEO Kurt Bush stated: "We believe the xPico-WiFi offers the ideal combination of small size, power efficiency and functionality to the M2M marketplace," ... "With the secure access point functionality, instead of looking up cryptic codes, a technician or operator can now use a tablet as the primary interface to a machine, bringing increased productivity along with a rich user experience."
On September 12, 2013, company executives updated institutional investors on the company's recent developments and their revenue and net income expectations for fiscal 2014 (started on July 1, 2013) and fiscal 2015.
Below are some of the highlights of that presentation (filed with the SEC the same day):
- New products will outpace decline in mature products
- Profitable growth forecasted - Double-digit revenue growth from the current $48M and 3% GAAP net income in 2014 and 8% in 2015. As a reference, the current market cap is only $20M!
- Accelerate product development - At least one new product launch/quarter.
- Expanding sales channels and marketing globally - Most recent in China with the JD.com thus accessing over 150 China cities and the opening of a new office in Shanghai in August 2013.
- Maintain and Improve strong balance sheet currently with 50c/share cash and no debt.
You will find more information on the company's products and value proposition on the company blog
Shares of LTRX are hovering around $1.4/share. If one excludes the cash on hand the stock is really trading at under $1/share. One bullish sign is that insiders have been buying persistently for the last 2 years at significantly higher prices. In my opinion, the current share price reflects skepticism that their new products won't deliver the forecasted revenue and net income targets stated in the September 12 investors' presentation. However, if successful, investors stand to be paid handsomely. Of course, the company needs to continue rebuilding and ramping its product portfolio. As it does, it should be noted that LTRX's product-planning process includes an assessment of whether a new product holds the potential of being attractive to a potential acquirer in the M2M sector, (like SWIR for instance). This could put LTRX in play long before the company reaches its full potential.
In conclusion, LTRX's risks and challenges are clearly baked into its share price, while its opportunity is being heavily discounted. Indeed, management has executed against every major objective since taking over several quarters ago. The intrinsic value at these levels is even more compelling now that the company is executing an aggressive global expansion with particular emphasis in high-growth areas for its products (China, other parts of Asia, Latin America, and Europe).