How B.O.S. Better Online Solutions Ltd. Could Double Or More

| About: B.O.S. Better (BOSC)

(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)

B.O.S. Better Online Solutions (NASDAQ:BOSC) is a leading provider of Mobile and Supply Chain solutions to global enterprises. BOS's mobile division offers both turnkey integration services as well as stand-alone products, including best-of-breed RFID and AIDC hardware and communications equipment, BOS middleware and industry-specific software applications. The company's supply chain division provides electronic components consolidation services to the aerospace, defense, medical and telecommunications industries as well as to enterprise customers worldwide.

Here is a picture of the BOSC solutions.

(Click to enlarge)

Machine to machine (M2M) refers to technologies that allow both wireless and wired systems to communicate with other devices of the same type. M2M has been and is one of the hottest growth sectors in the tech world. Machine-to-machine (M2M) is often portrayed as a nascent industry sector. However, operators are already generating strong revenue in this sector, amounting to $10 billion worldwide in 2013, and increasing to $88 billion by 2023. Future growth opportunities will be realized in emerging regions as applications are tailored to local markets and the cost of solutions declines.

Major corporations in a multitude of industries - ranging from aerospace to oil and gas to electronics - are currently using RFID to manage several machine to machine (M2M) applications, including inventory management, shipping and delivery, tracking parts, work in progress and employee data. As these companies begin achieving return on investment (ROI) on their RFID and M2M implementations, it will have a trickle-down effect into different types of industries and applications.

In an article titled "RFID: Embedded Everywhere?" it stated, "RFID is beginning to pop up in more places, and soon with a little help from the M2M community, it could be embedded in more places-places you might not even realize."

BOSC recently reported results for the third quarter with 16% revenue growth, $0.19 GAAP EPS and Non-GAAP EPS of $0.35. As far as the future outlook is concerned,

Edouard Cukierman, Chairman of the Board, stated, "We are very pleased with these results, which reflect a continuing improvement in the Company's performance and financial position. We expect these positive trends to continue in the future."

Yuval Viner, BOS CEO, added "We are continuing our efforts to streamline our operations, improve our products and strengthen our financial position. We are confident that we will meet our challenges and expect to end 2013 with a net profit on a non-GAAP basis."

Additionally, on October 16, 2013 BOSC announced that its Supply Chain Division received an order in the amount of $500,000 from an Israeli leading mobile operator. The order is for fourth generation Radio Frequency equipment that is intended for use with the mobile operator's cellular network. The supply of the order and the recording of revenues are expected in the fourth quarter of year 2013.

Risks for BOSC may include competition and the general economy. These seem to be somewhat mitigated in the near term by the comments from management. Lastly, BOSC has approximately 1.2 million shares outstanding and a float of approximately 800,000.

M2M stocks have commanded higher P/E ratios. The companies below have similar businesses in the asset monitoring niche of M2M :

Taking the BOSC third quarter GAAP and NON-GAAP EPS and conservatively (assuming no growth) extrapolating that despite management's bullish future comments and the fact they have the large $500k order in this current quarter, I get a GAAP EPS run rate of $0.76 and a Non-GAAP EPS run rate of $1.40. The Non-GAAP EPS numbers take out non-recurring charges:

a - Write off of slow moving inventory
b - Amortization of intangible assets
c - Stock based compensation
d - Property write off

Furthermore, regarding the Non-GAAP presentation, the press release explained, the company uses the non-GAAP measures presented to evaluate and manage the company's operations internally. The company is also providing this information to assist investors in performing additional financial analysis that is consistent with financial models developed by research analysts who follow the Company.

If BOSC were to be given a 15-20 P/E based on the extrapolated GAAP EPS it would be an $11.40-$15.20 stock. If BOSC were to be given a 15-20 P/E based on the extrapolated Non-GAAP EPS it would be a $21.00-$28.00 stock. BOSC is currently trading at approximately $7.50. The Non-GAAP range of $21-$28 is arrived taking out charges that are non-recurring and as BOSC explained, how financial analysts value the company. To find what I see as an undervalued company with such a small float structure and this kind of EPS growth is unique in my opinion.

Disclosure: I am long BOSC. 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.

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