This Tech Stock Is Sitting On A Big Opportunity That You Shouldn't Miss

| About: Sierra Wireless, (SWIR)
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Sierra Wireless is primed to benefit from the Internet of Things.

Sierra has made some key acquisitions to enhance its product portfolio.

Sierra is still cheap after rising 90% in the last one year, so it isn’t late for investors to benefit from this opportunity.

Sierra Wireless (NASDAQ:SWIR) is a company that was last covered on Seeking Alpha in November 2012. As a brief background, Sierra provides cellular wireless solutions to the machine-to-machine (M2M) and connected device markets in North America, Europe, and the Asia Pacific. Now, when we think of M2M, the Internet of Things springs to our mind.

The Internet of Things, according to Cisco (NASDAQ:CSCO), is a concept in which machines communicate with one another. Cisco believes that this market will be worth a whopping $19 trillion by 2020 with more than 50 billion connected devices. Hence, since Sierra provides solutions that address this market, I think it is in a solid position to benefit from the Internet of Things.

Recent financial performance

Sierra's recent financial performance has been strong. The company's revenue grew 11% year-over-year to a record $442 million in the fourth quarter as it executed upon its organic growth plan.

Sierra's profitability improved significantly, as its adjusted EBITDA grew 48% to $18.7 million. However, higher-than-usual revenue contribution from high volume automotive and mobile computing customers led to a slight drop in the gross margin in OEM solutions to 29% in Q4. The gross margin in enterprise solutions was a solid 53%.

The opportunity ahead

As mentioned earlier, Sierra has a huge opportunity ahead of it. The company is singularly focused on pursuing growth and value in M2M, both organically and inorganically. It completed the acquisition of AnyDATA's M2M assets in October last year and announced the completion of In Motion Technology's acquisition earlier this year.

Innovation continues to be a key contributor to Sierra's success, and in 2013, it delivered a number of new products and solutions that should give it a differentiating edge in the market to fuel future growth. Early this year, Sierra introduced its new family of smart modules, which are absolutely unique in the market, combining a multi-core architecture, new embedded application framework and pre-integrated AirVantage cloud services.

An entire M2M ecosystem on a single module enables OEM customers to develop and run their application directly on the module and to deploy and manage their devices in the cloud. This helps reduce customers' overall development time and the total cost of ownership.

New products and design wins

Sierra has released a number of new module devices for 4G networks around the world, including the AR7, which is the world's first 4G embedded module designed specifically for the automotive market. In Q4, Sierra also launched a powerful new series of embedded wireless modules. Sierra claims that these are the industry's smallest, most scalable, most flexible family of embedded wireless devices.

Last year, Sierra also secured landmark wins for its full device to cloud offering with OEM customers in the energy and industrial segments. AirVantage is expected to gain more traction at OEM customers due to the bundling of new offers to ramp up sales and marketing efforts in 2014. Apart from driving the business organically, Sierra has also strengthened its position through inorganic growth via acquisitions. The acquisition of Sagemcom and AnyDATA's M2M business in Q4 has added sales, marketing, and R&D talent, bolstering Sierra's product line and position in key regions such as Brazil and Korea.

Sierra's new products represent an important growth driver and differentiator for its enterprise business. To capitalize on this, its new product development investments are expected to continue at a steady pace. It recently introduced another new AirLink product, the ES440, designed specifically for branch office business continuity applications. In addition, the hit rate per AirLink gateway customer adopting AirVantage for device management services is also improving.

The acquisition of In Motion, which is a leading provider of mobile enterprise solutions for mission critical applications, is also expected to drive inorganic growth and value creation opportunities for Sierra in the enterprise solutions market.

Fundamental views

Sierra Wireless is exceptionally well positioned to capture the long-term growth opportunity in M2M. It has a significant blue chip customer base, has landed new customer design wins, and differentiated its products and solutions.

In addition, Sierra has a pretty strong balance sheet. It has around $180 million in cash, which is pretty strong considering that its debt is just $716,000. Also, over the last twelve months, the company has generated operating cash flow of $18 million, while levered free cash flow generation stands at $70 million. Also, despite a stock price increase of around 90% in the last one year, Sierra is still cheap at a trailing P/E of less than 12.


Thus, the stock presents an attractive proposition for investors looking to benefit from the high-growth market of the Internet of Things in general and machine to machine communications in particular. So, investors should definitely take a closer look at Sierra for the long run.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.