I'm constantly looking for fast-growing companies selling at reasonable earnings multiples. It's rare that I find one priced as reasonably as Lorex Technology (LOXFF.PK), a Toronto-based maker of Internet-viewable baby monitors and video security systems, as well as a new line of high definition miniature "sport action" cameras. The company's products (geared for both home and professional use) are widely available at retailers such as Amazon (AMZN), Home Depot (HD), Costco (COST), Best Buy (BBY) and many others. (Just go to any of those companies' web sites and enter "Lorex" in the search box.)
For the first nine months of the current fiscal year (ending September 30th) Lorex's revenue grew by 33% to $58.7 million and its tax adjusted EPS grew by over 50%, from less than .06/share to .09/share. (Last year the company was able to utilize the last of its operating loss carryforwards and thus actually earned .07/share on a "lightly taxed" basis. One derives 5.6 cents per share by adjusting that figure to make it comparable to this year's more normalized tax rate.)
The sole firm I've found that covers the company, PI Financial in Canada, estimates EPS of .13 this fiscal year and .18 next year. So at a recent price of $0.96/share, the stock sells for just 5.3x next year's earnings estimate, despite projected EPS growth of 38%. A PEG (price to earnings growth) ratio of just 0.5x that figure would value the stock at $3.42/share, while a traditional growth stock "fair value" PEG ratio of 1x (which I've chosen not to use here due to the fast-changing nature of the consumer electronics business) would price the stock at $6.84/share.
Importantly for a company of this size, Lorex has a "real auditor" in KPMG and the CEO (who previously successfully built and sold a larger electronics company called Sonigem) personally owns 13% of the stock. Insiders in total own 28%. The company's financial statements are available on Canada's SEDAR system (equivalent to our EDGAR) or directly on the investor relations section of Lorex's web site.
The largest risk here is the competitive nature of the electronics industry- in order to keep growing, Lorex's designers and engineers will need to keep innovating. So far they've been able to do this quite well, recently introducing a line of high-definition home security systems as well as sports-oriented miniature high definition video cameras that will compete directly with products from GoPro, a company which reportedly plans to raise $300 million to $500 million in an IPO later this year; as this would presumably be for only a fraction of the company, a substantial revenue valuation multiple is thus apparently being targeted for GoPro's $250 million in annual sales. By way of comparison, according to PI Financial, Lorex is forecast to generate $97 million in revenue next year and a 1.5x multiple on that would value the stock at $3.14/share.
I've owned Lorex for several months now and added to the position as recently as last week.
Disclosure: I am long LOXFF.PK.
Additional disclosure: Alternative symbols for Lorex are: LOX.V, LOX.CN, LOX.CA.