Airgain: Potential Gainer From Growth In Wireless And IoT Devices

| About: Airgain (AIRG)

Summary

Airgain is a networking company producing antenna products that are used within various wireless devices such as wireless routers, set top boxes, and smart TVs.

Revenue growth of 55% is expected for the first six months ended June 30, 2016 compared to prior year.

Customer base includes firms such as Broadcom, Google, Samsung, AT&T, and Comcast.

Fundamental Analysis

(Data as of September 16, 2016 unless otherwise stated)

Airgain (NASDAQ:AIRG) is a small cap company (market capitalization of approximately $108 million) that recently had its IPO and began trading on August 12, 2016. The company produces antenna products that are embedded in various wireless devices such as routers, set top boxes, and digital televisions. In order to differentiate its products from competitors, Airgain's goal is to achieve a 30% minimum OTA (over the air) performance improvement over competing antenna systems (source: company web site).

Airgain's customer relationships include the following companies:

Customers Click to enlarge

Source: Airgain's September 2016 Investor Presentation

Airgain's business model is not capital intensive as it utilizes third-party contract manufacturers as shown in the following slide:

Business Model Click to enlarge

Source: Airgain's September 2016 Investor Presentation

Airgain should benefit from the increased proliferation of wireless products and IoT (Internet of Things). The projected growth of these various markets is highlighted here:

Markets Click to enlarge

Source: Airgain's September 2016 Investor Presentation

Financials

Airgain reports earnings after the close on September 20. According to its IPO prospectus, sales are expected to be approximately $18.3 million with net income of $1.4 million for the six months ended June 30, 2016 compared to sales of $11.8 million and a net loss of $0.2 million for the six months ended June 30, 2015. This forecast implies sales of $9.8 million and net income of $1.3 million for the quarter ended June 30, 2016 compared to sales of $6.1 million and a net loss of $0.1 million for the quarter ended June 30, 2015.

Historical results are shown below:

Financials Click to enlarge

Sales growth was negatively impacted in 2015 as there was a device that reached the end of its lifecycle in August 2014 and was discontinued, which had accounted for $3.2 million of sales during the year ended December 31, 2014.

Technical Analysis

Since the start of trading after its IPO, Airgain has been on an upward trend. Airgain closed at $14.20 on September 16 with its 10 day EMA (exponential moving average) at $13.33. For short-term traders, Airgain has tended to bounce off of the 10 day EMA. Traders looking for a pullback can use the 10 day EMA as an entry point for this stock.

Airgain also appears to be following the same technical patterns of other strong performing IPOs such as Acacia Communications (NASDAQ:ACIA), Impinj (NASDAQ:PI), and Twilio (NYSE:TWLO) after one month of trading.

Recommendation

Airgain is more suited to investors or traders who are comfortable with speculative or volatile stocks. Long-term investors may want to take a small initial position before the company reports earnings to observe how the stock reacts afterwards. If one believes in the long-term secular trend of more wireless devices being connected to the internet, Airgain may fit the bill as a company that benefits from growth in this area.

Risk Factors

For an in depth analysis of Airgain's risk factors, a Seeking Alpha article discusses some potential issues. These include customer concentration risk, low technological barriers to entry, potential revenue loss from end products nearing the end of their lifecycle, and Airgain's solutions costing more than competitors' products.

The stock has a low float with 1.5 million shares and can be very volatile. It is recommended that limit orders be used when buying or selling shares.

Disclosure: I am/we are long AIRG.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.